Partner at Major International Accounting Firm Charged with Tax Crimes
WASHINGTON – A Newark, N.J., federal grand jury has returned an indictment charging Stephen A. Favato, a resident of Point Pleasant Beach, N.J., and a partner at a major international accounting firm, with tax charges for attempting to assist one of his clients evade income taxes, the Justice Department and Internal Revenue Service (IRS) announced today.
Favato, a partner in the accounting firm’s Woodbridge, N.J., office, was charged with tax evasion regarding the federal income taxes of Daniel Funsch and his spouse. Funsch (the client) is the president of a corporate client of the accounting firm, a fragrance manufacturer with its headquarters in Norwood, N.J. Favato was also charged with one count of corruptly endeavoring to obstruct and impede the administration of the Internal Revenue laws and one count of willfully aiding and assisting in the preparation and filing of the client’s false 2002 tax return.
According to the indictment, from Fall 2001 through April 2005, Favato attempted to obstruct the IRS by, among other conduct, advising the client on how to include false items on the client’s 2002, 2003 and 2004 joint income tax returns. Additionally, Favato knowingly prepared and signed false joint tax returns for the client for these years.
According to the indictment, Favato advised the client to significantly reduce the salary payments that the client was receiving from the corporation and to instead have this compensation paid to the client’s limited liability company, Great Escape Yachts LLC, in the form of purported lease payments for the client’s yacht. However, the corporation had not leased the yacht. This recommended course of action enabled the client to fraudulently deduct personal yacht expenses as business expenses. In addition, the indictment alleges that Favato advised the client on how to fraudulently eliminate a portion of the gain on property that the client sold in 2002 and 2004. Finally, the indictment alleges that Favato advised the client to report inflated charitable contributions on the client’s 2003 tax return.
An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in U.S. District Court. If convicted, the defendant faces a maximum potential sentence of 11 years in prison and millions of dollars in fines.
The case is being prosecuted by Tax Division trial attorneys Patrick J. Murray and Daren H. Firestone. The case was investigated by the IRS, Criminal Investigation Division.
Additional information about the Justice Department’s Tax Division and its enforcement efforts may be found at http://www.usdoj.gov/tax.