Ohio Man to Be Sentenced Following Tax Fraud Conviction

James Wright, 62, of Dayton, Ohio faces a sentence of up to three years in prison for each of the seven counts of tax fraud he was convicted of this November. Wright, who previously oversaw daily operations at Dayton-based skincare business B&P Company Inc., spent more than a decade establishing multiple entities to funnel funds from B&P into accounts held by himself and family members. Wright was previously convicted of tax evasion in 1998, to which he pleaded guilty after a criminal investigation revealed the use of trusts to unlawfully hide income from the Internal Revenue Service (IRS).

Ohio Business Owner Charged, Convicted of Multiple Tax Crimes

According to a press release issued by the Department of Justice (DOJ), Wright controlled day-to-day operations at B&P Company Inc., perhaps best known for selling the celebrity-endorsed anti-aging product “Frownies.”

Starting in 1997 (according to a different press release), Wright created a string of business entities that channeled funds from B&P to Wright and several of his relatives. One such entity, The Remnant Inc., received “management fees” from B&P. Wright, who did not receive a salary from B&P, then used funds from The Remnant’s accounts to pay for personal expenses on behalf of family members, including “rent for one of his daughters in New York and California.”

Wright also allocated additional funds in B&P accounts toward other family members. While the Remnant’s accounts funded rent expenses for Wright’s daughter, B&P accounts were used to pay for Wright’s mother’s apartment. According to a DOJ press release, Wright “directed employees of B&P to use corporate funds to pay for the rent and utilities at an apartment rented by his mother as well as rent for his daughter in New York.”

Wright filed fraudulent corporate tax returns for the Remnant, deducting lawn care expenses, utilities, and rent, which led the Internal Revenue Service (IRS) to place the company under audit in 2002.

In 2004, Wright submitted an IRS application for non-profit status for the Fore Fathers Foundation, a “private foundation,” established the previous year, which was “funded with donations from B&P Company and another entity that Wright controlled.” Wright used the Fore Fathers Foundation to pay college tuition and private school expenses for his children.

The indictment accused Wright of filing false personal income tax returns from 2008 through 2010, in each case underreporting his income to the IRS. During roughly the same period, one of the press releases notes that “Wright filed income tax returns in the name of the foundation for the years 2008 and 2009 that failed to disclose that the foundation made payments for his children’s educational expenses.” In accordance with 26 U.S. Code § 4941 pertaining to taxes on self-dealing, Wright should have reported and paid excise taxes on the educational expenses, which “constituted acts of self-dealing.” To quote the statute directly, under 26 U.S. Code § 4941(a)(1), “There is… imposed a tax on each act of self-dealing between a disqualified person and a private foundation. The rate of tax shall be equal to 10% of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period. The tax imposed… shall be paid by any disqualified person… who participates in the act of self-dealing.”

In 2010, the IRS initiated an audit of B&P’s tax returns. While the audit was in progress, “Wright falsely stated to an IRS revenue agent that he had no prior dealings with the IRS, despite the fact that he had been criminally prosecuted in the 1990s and audited in both the 1990s and early 2000s.” Indeed, an audit conducted during the 1990s led to the criminal investigation which culminated in Wright’s conviction of tax evasion in 1998.

Wright, who was placed under arrest on March 30, was convicted on November 7 of “seven counts of filing false corporate, individual, and private foundation tax returns” – perhaps an unsurprising outcome, considering the high rate of convictions, evident in these statistics, resulting from IRS criminal investigations.

According to the DOJ, no sentencing date has been set by U.S. District Judge Walter H. Rice. However, Wright will eventually face a potential sentence of up to three years in prison for each count. Moreover, Wright will be required to pay criminal penalties and restitution, which will likely cost tens of thousands of dollars in aggregate.

IRS Tax Audit Attorneys for CA Businesses and Individual Taxpayers

Whether a discrepancy arises from negligence or willfulness, the underreporting of income, or failure to report income, can lead to harsh civil penalties for the taxpayer. Criminal penalties may also result, in cases of willful underreporting or non-reporting.

Meticulous reporting and recordkeeping is critical to the successful avoidance of costly or even “life altering” civil and potentially criminal consequences. The perils of reporting errors are especially great for business owners, who are subject to extremely complicated tax regulations affecting S corporations, C corporations, limited liability companies (LLCs), and non-profit organizations.

Whether your business is being audited, you have been targeted for a criminal tax investigation, or you simply have questions about how to make strategic tax planning decisions for your family or your company, turn to the Tax Law Office of David W. Klasing for personalized guidance you can trust. Whether you are in need of aggressive representation in Tax Court, require assistance from an IRS appeals attorney to dispute the results of an audit, have questions about the audit process for our IRS tax audit lawyers, or wish to discuss corporate domestic or international financial planning with an experienced business tax attorney, contact us online or call (800) 681-1295 to book a reduced-rate consultation with our knowledgeable tax lawyers or accounting professionals, depending on your needs.

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Here is a link to our practice video on warning signs than an audit has gone criminal.

What is an eggshell tax audit?

https://www.youtube.com/watch?v=saJLVlER-iM

What is an effective tax defense in an IRS eggshell tax audit?

https://www.youtube.com/watch?v=7qixPqWTtvA

So, you cheated on your taxes and you are under a tax audit…

https://www.youtube.com/watch?v=FZce4jqQJpI

Why should I hire a tax attorney to represent me in a tax audit?

https://www.youtube.com/watch?v=NDwc4GUfBX8