Criminals go to great lengths to engineer fraud schemes that are undetectable. The owner of a Honolulu, Hawaii-based engineering services firm and his accountant carried out what they thought to be a well-designed plan to divert money that was intended for federal employment and income taxes into the owner’s bank account. However, the plan to commit business tax fraud was flawed and the two co-conspirators are now facing punishment for their illegal actions.
Court documents show that the business owner operated multiple engineering businesses. His partner in crime was the controller for those businesses, as well as an officer of a business entity controlled by the business owner. (Needless to say, this guy was very involved with the finances of the businesses.) When the Internal Revenue Service (IRS) discovered that the businesses collectively owed more than $800,000 in federal employment taxes, the agency assessed a $812,000 penalty. (What happens next caused the tax fraud empire to collapse.)
Instead of paying the tax bill, the two co-conspirators set in motion a plan to move income and assets out of the reach of the IRS. The pair conveyed a condominium from the business to the business owner’s wife. (But, when the IRS questioned the wife about the condo and her sole ownership, the two men directed a bookkeeper to “cook the books” so the transaction would be concealed.)
Over 11 years, the owner and the controller also diverted about $1.3 million for the owner’s personal use. And, for three years, the owner neglected to mention $533,000 in income on his tax returns. (As a result, the IRS did not collect taxes in the amount of $165,000.) Corporate tax returns omitted millions of dollars in gross receipts. For one business, the owner didn’t even file a tax return. (He neglected to report more than $1.7 million in gross receipts.)
The business owner was convicted on eight counts of tax fraud and faces 28 years in prison, plus supervised release, restitution and monetary penalties. He could also receive up to an additional 20 years behind bars for witness tampering. The accountant is facing a maximum five-year sentence for aiding and assisting the filing of a false tax return for one of the business owner’s companies.
Today’s tax fraud case is a good example of what happens to a business that is built on deception – the foundation crumbles. Let this be a lesson for other business owners considering building their business on fraud. The Department of Justice is the wrecking ball that will ensure that fraudulent businesses and executives are held accountable for their crimes.
Today’s “Fraud of the Day” is based on an article entitled, “Honolulu engineer and CPA convicted in tax fraud scheme,” published by Star Advertiser on November 22, 2018.
A federal jury in Honolulu convicted the owner of an engineering services firm and an accountant of conspiracy to defraud the United States, attorneys said.
Wagdy Guirguis, who ran GMP Associates Inc. and other businesses, and Michael Higa, a certified public accountant, were accused of running a scheme to divert funds from Guirguis’ business entities for his own personal benefit and to avoid the payment of federal employment and income taxes.