Several
years ago, I received an angry call from another CPA.
He had lost
a couple of key partners, to which he responded with an almost Game-of-Thrones vindictiveness.
He had been charged with issuing false Form 1099s to his former partners.
They dragged
him into Court for this and other reasons.
I had looked
into the 1099 matter. It is not every day a CPA is charged with issuing false
tax forms.
Why would
somebody do this: issue false 1099s?
Because chum
in the water.
Let’s talk
about the Petrunak case.
Petrunak was
a pyrotechnician.
This guy
made fireworks. He owned a company called Abyss Special FX, Inc. (Abyss), and
he could do both indoor and outdoor fireworks displays.
This also
meant that he was under regulation by the Bureau of Alcohol, Tobacco, Firearms
and Explosives (ATF).
A couple of
ATF agents conducted a mandatory inspection and found a number of violations.
Petrunak challenged their findings and had his day in administrative court. I
do not know what the details were, but the judge revoked Petrunak’s fireworks
license.
So much for
Abyss and his paycheck.
Petrunak
reckoned he lost a lot of money – both as real-money losses and as money he would
have made except for the ATF agents.
He had time
to think about it. He thought about it for five years.
He had Abyss
send each of them a Form 1099-MISC for $250,000.
Half a
million. He figured that was about what they had cost him.
Abyss
deducted that half million. As Abyss was an S corporation, there was a big loss
passed-through to Petrunak to use on his individual return.
Needless to
say, both ATF agents omitted that 1099 from his/her individual tax return.
One agent however
got pulled for audit.
The IRS
wanted taxes of over $100 grand. She spent a lot of time contesting and
unraveling that mess.
Exactly what
Petrunak wanted. Forms 1099 are chum in the water to the IRS.
Problem is,
the IRS pursued Petrunak after the ATF agent’s audit. He admitted to filing
those 1099s, but he was right in doing so and those two had lied – to a judge,
unbelievable! – and an IRS person told him that he might be able to issue 1099s
for his business costs. He estimated his costs to be half a million.
The IRS
charged him with three counts of making false and fraudulent IRS forms.
He fought
back, going to the Seventh Circuit Court of Appeals.
How did it
turn out?
Petrunak is
going to prison for 24 months.
His
accounting was fantastical, but I get his anger.
Circling
back, the accountant who called me was angry because I did not agree with him.
To be kind,
let’s say his side of story was … creative.
But then,
have a CPA play in a field with accounts receivable, deferred compensation, cash
transfers, buyout agreements and whatnot and a talented – and motivated - practitioner
can get creative.
He did.
Problem was:
he picked a fight with tax CPAs. Two of them.
Bad call.
It cost him
a few bucks.
