I’m often asked by clients about what they can put down on a tax return. I tell them that the US works on a voluntary-based income tax system. You can put down anything on a tax return. Of course, you swear under penalty of perjury (which the government takes seriously) that everything on the return is accurate, to the best of your knowledge. I strongly believe in having my clients pay the least amount of tax legally for their returns. Of course, some don’t share my scruples.
Take the case of Beaulieu Group, of Dalton, Georgia. The third largest carpet manufacturer in the United States, Beaulieu boasts sales of $1.1 billion. That’s a lot of carpet.
But like all companies Beaulieu must look out for its bottom line. So back in the 1990s the company bought millions of dollars of machines from Europe. That’s not a problem. They apparently put those machines on their books at a value millions over what they bought them for, so that they could take extra depreciation. As long as they weren’t caught, there’s no problem…but of course, you know since you’re reading this here, they were caught.
And catching something like this isn’t easy. Indeed, the government spent over $800,000 proving the case (which Beaulieu has agreed to repay to the government). The tax savings that Beaulieu received from the over-depreciation was $7 million. They’ll be paying back taxes (including interest) of $22.7 million, $7.7 million in penalties, and a criminal fine of $2.2 million. And as part of the plea bargain, the two owners of the company will no longer be involved in the day-to-day business of the firm.
So over nine years Beaulieu saved something over $7 million in taxes. Now, seven years after their last savings Beaulieu must pay out $33.4 million. No wonder Beaulieu’s Vice President and General Counsel, Peter Farley, said, “…[T]he Company has taken steps to strengthen its tax practices and compliance programs.”