Accounting Fraud in the movie Industry...

A Film Director has been indicted in $4,700,000 Film Tax Credit Scheme.

A director who directed 2 movies 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 and many others. One item inflated was payments of $2.5 million to Dreyfuss, when in fact the star only received $400,000.

A Grand Jury returned indictments Monday against the 50-year-old director and producer on charges of making a false claims, larceny over $250, procuring the presentation of a false claim to the Department of Revenue, filing a false document with the Department of Revenue, and procuring the preparation of a false tax return.

This investigation began in March 2010, when an investigator at the Department of Revenue spotted suspicious tax returns connected to the 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.

Prosecutors claim 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.

Earlier, Adams organized an LLC for the purpose of producing and distributing a motion picture. Through the LLC, 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.

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 an 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 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, the LLC was awarded more than $4.2million in tax credits.

According to investigators, the film 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.
A Grand Jury returned indictments against Adams on Monday and he was arraigned on Tuesday, where the judge set a bail of $100,000.