Shopping Tax Credits ’til You Drop
Taxpayers are naturally inclined to be giddy over refundable tax credits because of the ever so significant “R” word. Problem is, some of these taxpayers fail to properly channel that excitement. Dollar signs flash before their eyes, clouding judgment to the point of overindulgence via gross over-reporting and fraudulent schemes, ultimately resulting in time behind bars.
Such was the case of Justin Glynn French, of Richmond, Virginia. Mr. French was the owner of French Consulting Company, a Richmond-based real estate development company. One of his company’s projects involved the rehabilitation of a number of historic properties throughout the Richmond area.
The An incentive for such a project: federal and state tax credits.
The Federal Historic Preservation Tax Incentives program allows a property owner to receive a federal tax credit equal to 20 percent of the amount spent on eligible rehabilitation expenses. The Historic Rehabilitation Tax Credit program offered by the State of Virginia allows a property owner to receive a state income tax credit equal to 25 percent of the amount spent on eligible rehabilitation expenses.
In order to obtain tax credits for these expenses, the taxpayer must submit applications to the tax agencies. For one property, Mr. French represented rehabilitation costs as $1,571,503, despite paying only $700,000 to purchase the property. The federal and state agencies approved the applications and awarded Mr. French tax credits of $314,300 and $392,875, respectively.
Mr. French then sold some these tax credits for over $200,000 to private investors to claim the credits on their own tax returns. After transferring these funds from the bank account created for the property rehabilitation project to his personal savings account, Mr. French went on a spending spree including a beach house, a personal jet, and trips to Las Vegas.
Unsurprisingly, the Department of Justice came sniffing and determined that the authorized rehabilitation expenses for this particular project should have been approximately $403,200, or $1,168,303 less than reported on the tax credit applications. After totaling the disparities among all properties owned by French Consulting Company, the Department of Justice calculated total losses for the scheme to be $11,266,622.
Mr. French stated at his plea hearing the rehabilitation expenses were grossly overinflated, and earlier this week he was sentenced to 196 months in prison. He certainly can use the time away from fraudulently shopping around bogus tax credits in order to overindulge in his own rehab.