blog home White-Collar Crime Personal Use of Business Funds: How Is It Prosecuted?By Los Angeles Criminal Defense Attorney on November 10, 2022
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
Tax Evasion
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 lawyer as soon as possible. Depending on the circ*mstances, 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.
FAQs
Consequences can include the closure of your account, personal liability, tax implications, more complicated bookkeeping and a negative impact on your personal and business credit.
Can you use business funds for personal use? ›
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.
What is considered misuse of funds? ›
These include: Using public funds for your own use or the use of another person. Loan public funds or make a profit from them, or use public the funds for any unauthorized purpose. Knowingly maintaining a false account, make an entry or erase an account.
What is an example of misappropriated money from a business? ›
For example, a CEO entrusted with funds meant to be used to pay company expenses but uses the money instead to pay their personal credit card bills. The CEO can be charged with both misappropriation of funds and embezzlement.
Can you use LLC money for personal use? ›
However, you are not paid like a sole proprietor where your business' earnings are your salary. Instead, you are paid directly through what is known as an “owner's draw” from the profits that your company earns. This means you withdraw funds from your business for personal use.
When an owner takes money for personal use? ›
An owner's draw, also called a draw, is when a business owner takes funds out of their business for personal use. Business owners might use a draw for compensation versus paying themselves a salary.
What is unlawful use of money? ›
Penal Code § 424 PC makes it a crime for a public officer or a trustee of public funds to misappropriate the funds for improper use. A conviction is a felony punishable by up to 4 years in jail or prison, fines of up to $10,000.00, and permanent disqualification from holding public office.
What is the legal term for misappropriation of funds? ›
Legal Definition of Embezzlement
Embezzlement is the misappropriation of the assets that were entrusted to someone. Embezzlement is a white-collar crime, meaning that it is typically nonviolent and involves a violation of trust that someone has been given.
How would you determine if a misappropriation of funds occurred? ›
Typical warning signs to look out for include:
- Paying themselves an inflated fee to perform their duties.
- Skimming money off the top of bank accounts.
- Failing to deposit trust funds into a trust account.
- Commingling personal assets with trust assets.
- Transferring trust assets to related accounts.
Embezzlement, misappropriation of funds, fraud… these are all terms we're familiar with and are examples of white-collar crimes which carry serious consequences including losing your job, company fines, director disqualification and in the most serious cases imprisonment.
Asset misappropriation fraud could include any of the following: Embezzlement, where accounts have been manipulated or false invoices have been created. Deception by your employees. False expense claims.
What is an example of misuse of assets? ›
Examples of misuse of company assets may include using company equipment or facilities for personal use, diverting company funds for personal gain, stealing company property or information, or engaging in fraudulent activities using company resources.
Can I use a business bank account as a personal account? ›
Even if your financial institution doesn't say this (check your depositor agreement), you still shouldn't use the same checking account for business and personal expenses. All businesses, even very small ones, should keep these finances separate.
Is it illegal to use a business card for personal use? ›
Is it illegal to put personal expenses on a business credit card? No, it is not illegal and the credit card police won't come after you if you slip up (on purpose or accidentally). Think of it like taking the good pens and notepads home from the office.
Do banks report business accounts to the IRS? ›
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
Can I use my business account to buy food? ›
It is essential to separate personal and professional expenses to maintain financial transparency. 2. Grocery Shopping for Home: While it may be tempting to utilize a business credit card for grocery shopping, it is best to avoid this practice. Groceries for personal use should always be paid for using personal funds.
