Two Bellingham corporations, ALPHA TECHNOLOGIES, INC., and G.B. ENTERPRISES,
INC., were sentenced today for tax fraud offenses. Pursuant to the terms
of the written Plea Agreements, which accompanied the guilty pleas,
Chief United States District Judge John C. Coughenour sentenced G.B.
Enterprises, Inc. to pay $35.5 million in back taxes, interest, and
penalties and fines to the IRS. In addition, Alpha Technologies, Inc.
and G.B. Enterprises, Inc., each were fined $500,000 per corporation.
GB Enterprises was placed on three years of probation and Alpha Technologies,
Inc, was placed on probation for one year with special conditions aimed
at insuring that neither corporation commit further tax fraud.
G.B. Enterprises, Inc., and Alpha Technologies, Inc., are both Washington
corporations with their principal places of business in Bellingham.
Alpha Technologies, Inc., and a group of related "Alpha" corporate
entities worldwide, which are controlled by Fred Kaiser, a resident
of Cyprus and the Bahamas, manage product lines that include uninterruptible
power supplies and related products for the cable television and cellular
telephone industries. G.B. Enterprises, Inc., which is wholly owned
by Grace Borsari, a resident of Bellingham, manufactures "Alpha"
branded products.
According to court records, G.B, Enterprises, Inc., filed a fraudulent
corporate income tax return for the calendar year 1996, and Alpha Technologies,
Inc. aided and assisted in the preparation and presentation of this
fraudulent return. Corporate officers for each corporation admitted
on behalf of the corporate defendants that:
a. Defendants Alpha Technologies, Inc. (ATI) and G.B. Enterprises,
Inc. (GBE) are Washington corporations, with their principal places
of business in Bellingham, Washington. Fred Kaiser controls ATI and
a group of related "Alpha" corporate entities worldwide.
The Alpha corporate entities manage product lines that includes uninterruptible
power supplies and related products for the cable television and cellular
telephone industries. Grace L. Borsari is the sole shareholder of
GBE, which manufactures "Alpha" branded products. Mr. Kaiser
and Ms. Borsari are close business associates.
b. In 1996, GBE paid an eight percent "sales commission"
on most product sales to ATI, the entity primarily responsible for
administration and sales. ATI was responsible for the maintenance
of a regional sales network principally comprised of independent sales
representatives. ATI paid these independent sales representatives
a smaller sales commission, amounting to approximately one-half of
gross sales commissions.
c. The balance of the sales commissions paid by GBE to ATI was recorded
on ATI's books in a commissions clearing account. From time to time
during 1996, at the direction of Mr. Kaiser, ATI wire transferred
amounts from the commissions clearing account either to Alpha Technologies
GRC, Ltd., a Cayman Islands corporation, or to Alphatec. Ltd., a Cypriot
corporation.
d. GBE reported the entire amount of its sales commissions paid into
the ATI commissions clearing account as an ordinary and necessary
business expense for which GBE claimed a deduction. However, in truth,
GBE and ATI knew that GBE was only entitled to deduct that portion
of the sales commissions that was actually paid to independent sales
representatives and could not deduct that portion of the sales commissions
that was transferred off-shore to Alpha Technologies, GRC, Ltd., and
Alphatec, Ltd. These residual commissions were not bona fide ordinary
and necessary business expenses because there were no services rendered
to GBE or ATI and consequently, there was no justification for the
deduction of these residual commissions by GBE.
e. For 1996, GBE reported on its federal tax return sales commissions
of $9,577,418. In truth, $5,031,490 was improperly included in the
claimed deduction. This failure to accurately report only the legitimate
business expense relating to commission results in an additional tax
due and owing for 1996 of $1,721,869. For the eight year period beginning
in 1994 and continuing through 2001, GBE exaggerated its true sales
commissions by $56,879,852, thereby resulting in an additional tax
liability in excess of $19,564,000, exclusive of civil penalties and
interest.
In sentencing these companies, U.S. District Judge John C. Coughenour
expressed regret that the person most culpable for these crimes is
not facing indictment. The Judge acknowledged that person "is
not in this country and is not extraditable." Coughennour lauded
the government for "not taking the easy way out and indicting
those employees who were simply following orders from one higher up."
These sentences bring to a close an extensive investigation which
was conducted by IRS Special Agent Anne Rueter, Criminal Investigations
Division, and IRS Revenue Agent Erv Otis, Field Operations, Natural
Resources. These criminal convictions are a testament to the commitment,
dedication, expertise, and hard work of these IRS agents.
Steven J. Pasholk, Special Agent-in-Charge of the Seattle Field Office,
Criminal Investigations, Internal Revenue Service said "The IRS
expects the same level of honesty from corporate citizens as we do from
individuals. This investigation makes clear the commitment of IRS Criminal
Investigation to combat corporate tax fraud. By this prosecution and
sentencing, the average taxpayer can be assured that tax fairness applies
to all citizens."
For further information, please contact Public Information Officer
Emily Langlie at (206) 553-4110.
