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Embezzlement by Karen Steelman
Karen Steelman (Steelman) began her employment with Flair
Enterprises as bookkeeper and accountant in 1996 and was trained
in office procedures by Phillip Haney and Mrs. Haney. The
practice of separating noninsurance checks and cashing them
instead of depositing them was established before Steelman joined
the company, although no records were kept of such transactions
at the time she began her employment. Steelman was fired in
November 2000 when it was discovered that she was embezzling
substantial funds from Flair Enterprises during the course of her
employment. Phillip Haney’s wife, Regina Haney (Gina Haney), had
been assisting Steelman with the bookkeeping for Flair
Enterprises from May 1999 through November 2000. When Steelman’s
employment was terminated in November 2000, Gina Haney became the
primary bookkeeper.
Respondent allowed petitioners a deduction of $86,950 in
calculating their taxable income for 2000 for money embezzled by
Steelman in that year. The embezzlement deduction was labeled as
Employee Embezzlement Account in the “other deductions” section
of the Form 1120-S, U.S. Income Tax Return for an S Corporation,
filed by Flair Enterprises for the year 2000.
In November 2000, petitioner employed attorney/certified
public accountant Jeffrey C. Trent (Trent) to investigate
misappropriation and embezzlement of corporate funds. Trent
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