Tax Fraud – Two Men Sentenced to Prison for Deducting Personal Expenses on Their Tax Returns – Ethics Speaker Chuck Gallagher Comments

Paul and Paul, both from Washington state, were sentenced to federal prison for making and subscribing to false income tax returns. Paul Austin, age 58, and Paul Werlink, age 61, were told at sentencing that “Our tax system will not work if people don’t comply with it and understand that it is for the betterment of the entire country.”

When the men pleaded guilty on October 25, 2007, they admitted that during the calendar years 1998 through 2003, PAUL AUSTIN, who was formerly the president, and a fifty percent owner of, The Safety Team, Inc. and PAUL WERLINK, who was formerly the corporate secretary, and the other fifty percent owner, directed that certain of their personal expenses be paid by the corporation. Their failure to report these payments as income caused a material understatement of their personal income and the income tax due and owing for each of these calendar years. AUSTIN has since paid $320,000 in back taxes, civil penalties and interest. WERLINK has paid $90,000 in back taxes, civil penalties and interest.

Now, just to make this clear, both men paid the government what was due – including penalties and interest. That means that whatever benefit they thought they were getting in the short run, was eliminated and perhaps the cost of restitution to the government was more than the benefit they received.

The Safety Team, Inc, is a business located at 670 South Lucile Street in Seattle, Washington, which specialized in the installation of fire extinguishing systems, the sales of fire prevention equipment, and consulting on fire safety. For each year in question, the aggregate amount of these payments for personal expenses was omitted from PAUL AUSTIN’s and PAUL WERLINK’s personal income tax returns, but was included as a corporate expense on the corporate income tax return of The Safety Team, Inc. In addition to understating their personal income, PAUL AUSTIN’s and PAUL WERLINK’s actions also caused a material overstatement of business expenses and a material understatement of the corporate income tax due and owing on the corporate returns for these same years. PAUL V. AUSTIN and PAUL WERLINK later sold their interests in The Safety Team, Inc., and are no longer involved as owners of the business.

Sure enough – Every choice has a consequence. For those who read my blogs regularly, you know that statement will resonate. You can make choices that you think have no consequence, but the reality is – you do reap what you sow.

At AUSTIN’s sentencing Assistant United States Attorney Robert Westinghouse told the court, “for more than ten years Mr. Austin systematically cheated on his taxes. He made a knowing decision to shirk his duty as a taxpayer…. The message should be ‘when you cheat on your taxes you are going to go to jail,’ and that is a message that will resonate with the public.”

As the gavel was dropped and the sentence handed down, Judge Martinez agreed with the prosecutor by telling the men, “Every time you used the corporate credit card to pay your personal expenses you cheated the rest of the taxpayers.”

TAKE NOTE: As a business ethics and white collar crime speaker, (www.chuckgallagher.com) I know first hand the effect of the choices you can make. Be honest with the government. Pay your taxes. Don’t take risks in this area. The price is too great. Federal prison is not fun!