Personal Use of Business Funds: How Is It Prosecuted?
When business owners use business funds for personal expenses, it is bad practice that can lead to operational, legal, and tax problems. Using company funds as a personal piggy bank for one’s own benefit is not only a breach of fiduciary duty, but also unlawful. For one thing, according to the IRS, personal expenses are not eligible as business expense deductions.
Examples of personal use of business funds include:
- Withdrawing money with a company debit card for personal purchases
- Signing a blank business check and handing it over to your spouse to buy something for your home
- Taking cash paid to the business for personal use
- Using company funds to pay personal bills
- Buying or leasing real estate with company funds but using it for personal purposes
- Taking out a loan in the name of the company for a particular business purpose and using the money for personal expenses instead
- Paying for family vacations with business funds and writing them off as business trips
What Charges Could You Be Facing for Personal Use of Business Funds?
Misappropriation of Funds
Misappropriation is the intentional and unlawful use of someone else’s property for purposes not authorized by the owner of the property. This includes misuse of company funds when partners or shareholders are involved. Misappropriation of funds is a white-collar theft crime similar to embezzlement. For example, a CEO or managing partner who used company funds to pay personal credit card bills could be facing charges of misappropriation of funds and embezzlement.
Misappropriation of business funds is often prosecuted at the state level. In some cases, it may be prosecuted in federal court if it involves misappropriation of federal funds, internet use to carry out the crime, or crossing of state lines in commission of the crime. Penalties for this offense may include:
- Up to one year in prison for misdemeanor misappropriation and a prison sentence of one to 10 years or more for felony misappropriation
- Fines of up to $1,000 for a misdemeanor conviction and up to $10,000 or more for a felony conviction
- Probation for up to five years
- Restitution to the victim of the crime
The IRS is well aware that business owners are in a unique position to determine their income tax liability. The agency also knows that some business owners may use business accounts to pay for personal expenses and deduct those expenses, although they are not related to the operation of the business. This is a criminal offense under I.R.C. Section 7201.
The law states, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
What Legal Defenses Are Available
If you are facing charges involving personal use of business funds, it is critical to speak with an experienced Los Angeles criminal defense attorney as soon as possible. Depending on the circumstances, defenses your lawyer may raise include:
- Lack of intent
- Permission from the owners
- Reasonable, good faith belief that you were the rightful owner of the funds
- Insufficient or inadmissible evidence
Contact Werksman Jackson & Quinn LLP at (213) 688-0460. We have a proven track record of resolving issues quickly and quietly. Mark Werksman has been listed by Los Angeles Magazine as among the area’s top white collar criminal defense attorneys.