According to a press release issued by the U.S. Department of Justice (DOJ), 56-year-old Jerome “Jerry” Hennessey, formerly general manager of the Ashby Farmers Cooperative Elevator Company in Ashby, Minnesota, was criminally charged in December 2018 with one count of mail fraud, a federal felony under 18 U.S. Code § 1341. Later that month, federal prosecutors charged Hennessey with one additional count of tax evasion, which is criminalized under 26 U.S. Code § 7201.
According to court records, Hennessey defrauded the co-op he managed over the 15-year period spanning 2003 to 2018, during which time the defendant used company funds “for his own expenses,” including luxury purchases exceeding “$1 million in payments to Hennessey’s personal Cabela’s Visa Card,” plus “hundreds of thousands of dollars for various hunting trips… international big game hunting safaris, and taxidermy services.” In total, Hennessey treated himself to approximately $400,000 worth of hunting gear and related services, including a product called a “Zebra Pedestal.”
His wire fraud scheme came to the surface around September 2018, after co-op members, expressing “concerns over payments that Hennessey made to himself,” alerted law enforcement to the possibility of criminal activity. When co-op members attempted to confront Hennessey on September 10, he failed to appear for their scheduled meeting, instead fleeing to Iowa.
Unfortunately for members of the co-op, their worst suspicions appeared to be confirmed by the discovery of “multiple checks” in amounts exceeding $40,000. At least one of the checks was worth more than three times that amount at $135,000.
In December 2018, only a few months after his flight to Iowa, Hennessey reversed course and turned himself in to the authorities. In a court filing dated December 18, Assistant United States Attorney John Kokkinen stated that, by exploiting his position as the co-op’s manager, Hennessey ultimately “obtain[ed] a line of credit for the co-op in the amount of approximately $8 million.” Kokkinen further explained that, in order to accomplish this, the defendant “made numerous misrepresentations to the lender… regarding the co-op’s assets that were to serve as collateral for the line of credit.”
The tax fraud charge arose from a separate incident in 2014: namely, the filing of a falsified tax return, on which Hennessey knowingly underreported taxable income by a significant margin. Hennessey, who filed jointly with his wife Rebecca, reported $97,329 in combined income, bringing the tax due to approximately $16,189. However, had Hennessey properly reported the couple’s full income, the actual tax liability would have been many times higher. How much higher? As Kokkinen explained, there would have been “at least $270,000 in additional tax due” had the couple’s income been reported properly.
Hennessey’s case, which is being presided over by Magistrate Judge Katherine Menendez in Minneapolis district court, was the culmination of a joint investigation by the Criminal Investigation Division of the IRS (IRS-CI), the Minnesota Bureau of Criminal Apprehension, and the Sheriff’s Office for Grant County, where Ashby is located. This sort of partnership is typical of criminal tax investigations, on which state and federal law enforcement agencies frequently collaborate. (In fact, during recent years, there has been a trend toward increased international collaboration – as evidenced, for instance, by the creation last year of the J5, which joins five member nations in a global crackdown on Bitcoin-fueled cybercrime and offshore tax evasion.) Tax offenders may be able to run – but in an increasingly digitized and interconnected world, they are almost never able to hide.
Of course, many tax crimes take place right here in the United States, with Hennessey’s case representing just one of many hundreds that will likely be prosecuted over the course of 2019. (For a quick look at some of the government’s most recent facts and figures, see our article on 2017 tax crime statistics.)
If convicted, Hennessey, like so many tax defendants, will be facing up to a harsh set of punishments, including a prison sentence of up to five years for the tax evasion offense, plus fines as high as $100,000, under 26 U.S. Code § 7201. In addition, he could be ordered to pay whatever amount of IRS restitution the court calculates to be appropriate, taking into consideration the tax loss to the government. Moreover, Hennessey could receive various civil penalties – which, though outwardly less intimidating than criminal penalties, are nothing to be scoffed at by taxpayers. On the contrary, the civil fraud penalty is equivalent to a whopping 75% of the underpayment; and that is merely a single example of the numerous civil tax penalties that can be imposed by the IRS, depending on the circumstances. (Others, for instance, include delinquency and accuracy-related penalties.)
For the time being, Hennessey is free on bond, but is forbidden from leaving the state of Minnesota. Our tax crime defense lawyers will continue to provide updates as the case progresses.
Underreporting income, failing to file tax returns, and filing a false return are actions that can lead to criminal charges, civil penalties, or both. If you are being investigated by IRS-CI, have been chosen for an IRS tax audit, or have been criminally charged with tax evasion, you need an aggressive and zealous representative who is prepared to fight in your corner.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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