Former Partner at BDO Seidman LLP Sentenced to Prison for Tax Crimes

Stephen A. Favato, a resident of Point Pleasant Beach, New Jersey, and a former partner in BDO Seidman LLP's Woodbridge, New Jersey, office, was sentenced to eighteen months in prison for tax crimes, the Justice Department and the IRS announced April 16.

In August 2010, a jury sitting in Newark, New Jersey, found Favato guilty of one count of corruptly endeavoring to obstruct and impede the Internal Revenue laws and one count of aiding and assisting in the preparation and filing of a false income tax return.

During the trial, evidence presented proved that fr om late 2001 through April 2005, Favato attempted to obstruct the IRS by, among other conduct, advising his client, Daniel Funsch, on how to include false items on the 2002, 2003, and 2004 joint income tax returns for Funsch and his then-wife.

Additionally, the evidence proved that Favato knowingly prepared and signed false joint income tax returns for the Funsches for these years, causing over $114,000 of tax loss to the IRS in connection with the Funsches' filed 2002 return and attempting to cause over $70,000 of tax loss in connection with tax years 2003 and 2004.

The evidence presented at the trial established that Favato advised Funsch to significantly reduce the salary payments that Funsch was receiving from his corporation and to instead have this compensation paid to Funsch's lim ited liability company, Great Escape Yachts LLC, in the form of purported lease payments for Funsch's yacht. However, his corporation had not leased the yacht. This course of action recommended by Favato enabled Funsch to fraudulently deduct his personal yacht expenses as business expenses.

In addition, the evidence presented showed that Favato advised Funsch on how to falsely increase his expenses in order to fraudulently eliminate a portion of the gain on three properties that Funsch sold in 2002 and 2004. Finally, the evidence showed that Favato advised Funsch to report inflated charitable contributions on Funsch's 2003 tax return. The jury acquitted Favato on one count of tax evasion.

The case was investigated by special agents of the IRS - Criminal Investigation and prosecuted by trial attorneys Patrick J. Murray and Sean Delaney of the Justice Department's Tax Division.