A jury has entered a guilty verdict against a former BDO Seidman partner who advised a client on how to include false items on his joint income tax returns for three years in a row.

The jury in U.S. District Court in Newark, N.J., convicted Stephen A. Favato, a former partner at BDO Seidman’s Woodbridge, N.J., office. He was found 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 tax return.

Prosecutors charged that Favato attempted to obstruct the IRS by 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 (see BDO Partner Charged with Tax Crimes). They said he knowingly prepared and signed false joint tax returns for the Funsches, causing over $114,000 of tax losses for the 2002 return and attempting to cause over $150,000 of losses for tax years 2003 and 2004.

Favato advised his client to significantly reduce the salary payments that Funsch was receiving from his corporation and to instead have the compensation paid to Funsch's limited 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.

The course of action recommended by Favato enabled Funsch to fraudulently deduct his personal yacht expenses as business expenses, said prosecutors. 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 his 2003 tax return.

The charges of corruptly endeavoring to obstruct and impede the internal revenue laws and aiding and assisting in the preparation and filing of a false return each carry a maximum punishment of three years and a fine of up to $250,000. In addition, Favato was acquitted of one count of tax evasion.

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