Movie Director Indicted in Connection with Fraudulently Obtaining $4.7 Million in Film Tax Credits
Director of “The Golden Boys” and “The Lightkeepers” Filmed on Cape Cod Allegedly Submitted Inflated and Fraudulent Film Credit Applications
BOSTON – A Los Angeles based movie director has been indicted in connection with fraudulently submitting film tax credit applications claiming inflated expenses for two films made in Massachusetts that resulted in an overpayment of more than $4.7 million in taxpayer funds, Attorney General Martha Coakley announced today.
A Suffolk County Grand Jury returned indictments today against Daniel Adams, age 50, on the 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). Adams 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 AG Coakley. “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” film. During the course of its review of the 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. Those returns 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. The DOR then referred their 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. Adams allegedly submitted fraudulent tax credit applications that greatly inflated expenses for two 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% tax credit for various payroll and production expenses incurred in the Commonwealth.
In 2006, Adams organized West Wind Productions, LLC (WWP) for the purpose of producing and distributing a motion picture. Through WWP, Adams 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. Tax credits are issued at the conclusion of a film, when all expenses are reviewed by a Certified Public Accountant and then submitted to the Department of Revenue (DOR).
In December 2006, WWP entered into an agreement with a tax credit consulting firm to partially fund the production of “Chatham,” 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.
At the film’s conclusion, Adams allegedly supplied his expenses to an independent accountant and reported eligible costs to the DOR 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 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. Adams 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 allegedly supplied expenses to an independent accountant and reported eligible costs to the DOR 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 showed that there was in fact 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.
Today, a Suffolk County Grand Jury returned indictments against Adams. Adams will be arraigned in Suffolk Superior Court on Tuesday, December 13. Adams remains held on $100,000 cash bail.
These charges are allegations. The defendants are presumed innocent until proven guilty.
The case is being prosecuted by Assistant Attorney General Molly Parks, Senior Counsel for AG Coakley’s Fraud and Financial Crimes Division and was investigated by DOR Investigators Janel Cosgrove and Thomas Nowicki with assistance from Massachusetts State Police.
The AG’s Fraud and Financial Crimes Division focuses on cases of fraud and white collar crimes. These cases include: employee embezzlement; thefts by attorneys and investment advisers; tax fraud; mortgage fraud; and other crimes against companies that impact their financial standing and harm taxpayers.