A director who helmed two movies on Cape Cod has been indicted for fraudulently obtaining over $4.7 million in film tax credits from the state of Massachusetts.
Daniel Adams allegedly claimed inflated expenses for two films that resulted in the nearly $5 million overpayment.
Adams received the tax credits for the 2009 movie “The Lightkeepers,” starring Richard Dreyfuss, Blythe Danner, Bruce Dern and Julie Harris, and the 2008 picture “The Golden Boys,” with the late David Carradine, Rip Torn, Bruce Dern, Mariel Hemingway and Charles Durning. They both included scenes on Cape Cod. Among the inflated expenses claimed was one for $2.5 million to Dreyfuss, when in fact the “Jaws” star only received $400,000.
A Suffolk County Grand Jury returned indictments Monday against the 50-year-old director and producer on charges of making a false claim against the Commonwealth (2 counts), larceny over $250 (2 counts), procuring the presentation of a false claim to the Department of Revenue (2 counts), filing a false document with the Department of Revenue (1 count), and procuring the preparation of a false tax return (3 counts).
He was arrested on December 8 without incident by State Police assigned to the Attorney General’s Office. The next day, Adams was arraigned in Boston Municipal Court where he pleaded not guilty and was ordered held on $100,000 cash bail.
“We allege that the defendant purposely lied about the cost of his production in order to fraudulently collect film tax credits to fund his projects and to generate personal profit,” said Massachusetts Attorney General Martha Coakley in a statement. “The film tax credit encourages legitimate productions to be filmed in Massachusetts and we will hold accountable those who use it as a vehicle for fraud.”
This investigation began in March 2010, when an investigator at the Department of Revenue spotted suspicious tax returns connected to “The Lightkeepers” production. During the course of its review of the tax credit application, the department discovered that withholding tax had not been paid on the lead actors’ salaries. They required payment of that tax before issuing the tax credit certificate.
Adams allegedly had the tax paid, but later attempted to recover the money by directing false Massachusetts income returns to be prepared in three of the actors’ names. The tax returns sought large refunds to be deposited to Cape Filmworks’ bank account. These returns triggered scrutiny by the Department of Revenue, and led to the investigation of the underlying tax credit application. The DOR then referred its findings to the AG’s Fraud and Financial Crimes Division.
After further investigation, prosecutors allege Adams participated in a scheme to defraud taxpayers that began in 2006. He allegedly submitted fraudulent tax credit applications that greatly inflated expenses for the pair of Cape Cod-based film projects and in turn received a tax credit overpayment of more than $4.7 million. The Massachusetts film tax credit statute allows a film production company to receive a 25 percent tax credit for various payroll and production expenses incurred in the Commonwealth.
In 2006, Adams organized West Wind Productions, LLC for the purpose of producing and distributing a motion picture. Through WWP, he allegedly solicited independent investors and also sought financing based on the tax credits the film would generate.
Tax credit financers will often advance money to projects under an agreement to later purchase the tax credits at a discounted rate after they are issued. The tax credits are then issued at the conclusion of a film, when all expenses are reviewed by a CPA and then submitted to the Department of Revenue.
In December 2006, WWP entered into an agreement with a tax credit consulting firm to partially fund the production of “Chatham,” which was later renamed “The Golden Boys.” The agreement allegedly included an initial payment to help fund the film as well as the right to later purchase anticipated film tax credits.
Once the production wrapped up, Adams allegedly supplied his expenses to an independent accountant and reported the eligible costs to the Department of Revenue of more than $6.7 million.
This resulted in a tax credit payment of more than $1.6 million. Investigators allege that multiple reported costs were fictitious or inflated, and that the eligible costs to produce the film were in fact only $2.3 million. As a result, prosecutors allege Adams received an overpayment in tax credits of $1.1 million.
In January 2009, Adams organized Cape Filmworks, LLC for the purpose of producing and distributing a motion picture. He then allegedly entered into an agreement with a tax credit financer to advance funding for the production of “The Lightkeepers” in return for purchasing the anticipated film tax credits.
At the conclusion of the film, Adams next allegedly supplied the expenses to an independent accountant and reported eligible costs to the revenue department of over $17 million. Based on the accepted expense figure, Cape Filmworks was awarded more than $4.2 million in tax credits.
According to investigators, Cape Filmworks’ accounts in reality showed that there was no other major funding for the film and that the only deposits of significance were those from the tax credit financer, totaling approximately $3 million. Numerous items listed as expenditures were allegedly fictitious or inflated. For example, prosecutors allege Adams reported that he had paid actor Richard Dreyfuss $2.5 million, when in fact he was paid only $400,000. As a result, prosecutors allege Adams received an overpayment in tax credits of more than $3.6 million.
During the course of its review of “The Lightkeepers” tax credit application, the DOR discovered that withholding tax had not been paid on the lead actors’ salaries, and required payment of that tax before issuing the tax credit certificate. Adams allegedly had the tax paid, but later attempted to recover that money by causing false Massachusetts income returns to be prepared in three of the actors’ names that sought large refunds to be deposited to Cape Filmworks’ bank account. These returns triggered scrutiny by the DOR, and led to the investigation of the underlying tax credit application.
A Suffolk County Grand Jury returned indictments against Adams on Monday and he was arraigned in Suffolk Superior Court on Tuesday, where the judge set a bail of $100,000.
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