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Examples of Employment Tax Fraud Investigations - Fiscal Year 2012

The following examples of employment tax fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.

South Jersey Business Owner Sentenced for Evading Employment Taxes
On September 28, 2012, in Trenton, N.J., Vanna Kem, of Sicklerville, N.J. was sentenced to 18 months in prison, three years of supervised release and ordered to pay $163,838 in restitution to the IRS for evading employment taxes. Kem plead guilty to an Information charging her with one count of tax evasion. According to court documents and statements made in court, Kem was the owner and operator of the New Jersey-based temporary employment agency Tri State Labor Services Inc. (Tri State). Despite being the true owner of Tri State, Kem incorporated the business and maintained the corporate bank account in a nominee's name. From the first quarter of 2006 through the last quarter of 2008, Kem paid Tri State employees more than $1 million in cash wages without withholding employment taxes. She also failed to file IRS 941 forms – Employer’s Quarterly Federal Tax Returns – in which she was required to report the wages she paid her employees.

Former Flagstaff Tax Preparer Sentenced for Filing False Payroll Tax Returns
On September 26, 2012, in Phoenix, Ariz., Devon M. Scott was sentenced to 15 months in prison, one year of supervised release, and ordered to pay $107,775 in restitution. On February 6, 2012, Scott pleaded guilty to aiding and assisting in the preparation of false and fraudulent tax returns. According to court documents, Scott, aka Roland J. Rojas, owned and operated the now defunct Devero Premier Services Group, a payroll tax service in Flagstaff, Arizona with approximately 40 clients. Among the services Devero performed for its clients was collecting and paying its clients’ payroll taxes to the IRS. From January to July 2005, in eleven specific instances, Scott filed tax returns that fraudulently and falsely stated the amount of payroll taxes that Devero had deposited with the IRS on behalf of clients.

Texas Man Sentenced for Failing to File and Pay Employment Tax
On September 20, 2012, in Oklahoma City, Okla., James Davis from Edmond, Okla., was sentenced to 20 months in prison, three years of supervised release, and ordered to pay $476,493 in restitution. Davis pleaded guilty in November 2011 to failure to collect and pay federal employment tax to the IRS. According to court documents, Davis was the owner of Hardcore Management, LLC which served other businesses owned and operated by Davis in Oklahoma City, Oklahoma, including an ice vending company and several gentlemen’s clubs.  From September of 2004 through January of 2008, Davis failed to collect and pay the IRS federal employment payroll taxes owed by Hardcore.

Massachusetts Tax Fraud Promoters Sentenced for Conspiracy to Obstruct and Impede the IRS
On September 27, 2012, in Boston, Mass., Charles Adams, of Norwood, Mass., was sentenced to 48 months in prison and ordered to pay $401,000 in restitution. On April 2, 2012, a federal jury convicted Adams, Catherine Floyd and William Scott Dion, both of Sanbornville, N.H., for conspiracies to defraud the United States through the promotion and use of multiple tax fraud schemes. The jury convicted all three of conspiracy to defraud the IRS by promoting an “under the table” payroll scheme. Dion and Floyd were also convicted for conspiracy to defraud the IRS through the use of an “underground warehouse banking” scheme designed to conceal customer income and assets from the IRS. Floyd and Dion were also convicted separately for corruptly endeavoring to obstruct the IRS’s ability to determine their own income. Adams was separately convicted of tax evasion with respect to his own taxes. On September 21, 2012, in Worcester, Mass., Catherine June Floyd was sentenced to 60 months in prison and ordered to pay $3 million in restitution. According to the evidence presented at trial, Floyd, Dion and Adams ran a payroll tax scheme to pay employees “under the table” without properly accounting for, withholding, and paying over to the IRS the payroll taxes required by law. The three promoted the payroll scheme to employers and individuals who wanted to avoid paying employer and individual payroll taxes. They ran the payroll scheme under three different names: Contract America, Talent Management and New Way Enterprises. Approximately 150 individuals subscribed to the payroll scheme and more than $2.5 million in unreported wages and compensation were paid through the system. The evidence at trial also established that Floyd and Dion were promoting and operating an “underground warehouse banking” scheme which helped subscribers conceal income and assets from the IRS. The warehouse scheme operated under three different names: Your Virtual Office, Office Services and Calico Management. Under the warehouse banking scheme, the defendants maintained accounts at several banks and used the accounts to deposit and commingle business receipts and other funds received from subscribers to mask the true ownership of the funds. More than $28 million was deposited into the various bank accounts.  Four other defendants in this case have previously pleaded guilty and await sentencing. On September 6, 2012, Dion was sentenced to 84 months in prison and ordered to pay $3 million in restitution.

Defendant Sentenced in Scheme to Defraud the IRS
On September 18, 2012, in Cincinnati, Ohio, Larry Lough, of West Chester, Ohio, was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $757,751 in restitution to defrauded investors and $145,175 in restitution to the IRS. Lough pleaded guilty on February 15, 2012, to conspiracy to commit mail and wire fraud, conspiracy to commit employment tax fraud and income tax evasion. According to court documents, during 2005, Lough and another individual operated a research and development company known as Tri E Technologies (TET). As an employer, Lough was required to file Forms 941, Quarterly Employment Tax Forms, and to collect and pay over federal employment taxes on the employees. Lough issued checks to the employees and himself, and withheld the employee’s share of the payroll taxes, but failed to remit the employment taxes collected along with the appropriate employer’s matching contributions to the IRS. Lough filed false quarterly employment tax returns with the IRS for 2005 and 2006 under-reporting wages by over $750,000. In addition, through the false accounting records and the false partnership returns, Lough evaded the assessment, reporting, and payment of taxes, including those associated with Medicare, Social Security, and personal income taxes, which he had an obligation as employers to pay.

Landscaping Executive Sentenced for Evading Employment Taxes
On September 6, 2012, in Richmond, Va., Mark S. Holpe, of Midlothian, Va., was sentenced to 18 months in prison and fined $40,000 for evading the payment of employment taxes on unreported cash wages he paid employees of Nature’s Way Landscaping, Inc. Holpe pleaded guilty to evading the assessment of $326,196 of employment taxes. Holpe worked for Nature’s Way, a business that did residential and commercial landscaping in the Richmond metro area. He was originally the president, but became the treasurer in 2007 when he sold a portion of the business. In entering his plea, Holpe acknowledged that the company had two groups of employees during tax years 2006 through 2009. Holpe admitted that he paid one group of approximately 30 employees $2,132,000 in cash wages during that period, without withholding social security taxes. He did not issue them Forms W-2 or 1099, or file Employer’s Quarterly Tax Returns for them. He further admitted that, when supplying expense information to the company’s tax preparer for years 2006 through 2009, he did not identify the employees who were paid in cash.

Massachusetts Tax Fraud Promoter Sentenced
On September 6, 2012, in Worcester, Mass., William Scott Dion was sentenced to 84 months in prison and ordered to pay $3 million in restitution. A federal jury convicted Dion on Aprl 2, 2012, for conspiring to defraud the United States by promoting  and using multiple tax fraud schemes. According to the evidence presented at trial, Dion and others ran a payroll tax scheme to pay employees “under the table” without properly accounting for withholdings or paying the payroll taxes to the IRS. He  promoted the payroll scheme to employers and individuals who wanted to avoid paying employer and individual payroll taxes. The payroll scheme operated under three different names: Contract America, Talent Management and New Way Enterprises. Approximately 150 individuals subscribed to the payroll scheme and more than $2.5 million in unreported wages and compensation were paid through the system. Dion and others also conspired to defraud the United States by promoting and operating an “underground warehouse banking” scheme, which helped subscribers conceal income and assets from the IRS. The warehouse scheme operated under three different names: Your Virtual Office, Office Services and Calico Management. As part of the warehouse banking scheme, the defendants maintained accounts at several banks and used the accounts to deposit and commingle business receipts and other funds received from subscribers to mask the true ownership of the funds. More than $28 million in deposits were made into the various bank accounts used in the scheme.

North Carolina Businessman Sentenced for Payroll Tax Fraud
On September 5, 2012, in Charlotte, N.C., Bruce Harrison, III, of Greensboro, was sentenced to 144 months in prison and ordered to pay more than $43 million in restitution for payroll tax fraud and failure to file individual income tax returns.  According to court documents, Harrison owned or controlled temporary staffing companies operating in at least nine states under various corporate names. Harrison’s staffing companies were headquartered in Guilford County, N.C., and contracted with client businesses to provide temporary workers. Harrison’s companies promised to assume full responsibility for paying wages and withholding and transmitting taxes to the IRS for those employees. Instead, Harrison failed to account for and pay over in excess of $40 million in federal payroll taxes for the employees. Harrison created false bank statements for auditors to conceal the nonpayment of the payroll taxes. Harrison was also convicted of corruptly endeavoring to obstruct the IRS by means of false statements to IRS revenue officers. He used company funds to purchase personal residences, buy a yacht and finance commercial motion pictures. Harrison was also convicted of failing to timely file his own income tax returns for 2004, 2005 and 2006.

Florida Man Sentenced for Tax Fraud
On August 16, 2012, in Orlando, Fla., Daniel Thomas, Jr., of Ocala, Fla., was sentenced to 30 months in prison and three years of supervised release for attempting to evade federal income tax. The court also ordered him to pay $334,742 in restitution. According to court documents, Thomas operated Key Business Solutions and Payroll Advisors in Ocala, under “Dan Thomas, Inc.” Between 2007 and 2009, Thomas defrauded his clients of funds they owed to the IRS as payroll taxes. Thomas embezzled these funds to pay business expenses and to pay his own personal expenses. In total, Thomas diverted $852,036 from seven different Ocala companies. He also failed to file personal income tax returns for 2007, 2008, and 2009, resulting in a tax loss of $45,533.  

Former Nursing Home Operator Sentenced for Health Care Fraud and Tax Fraud
On August 13, 2012, in Rome, Ga., George D. Houser, of Sandy Springs, Ga., was sentenced to 240 months in prison and three years of supervised release on charges of conspiring with his wife to defraud the Medicare and Georgia Medicaid programs by billing them for “worthless services” in the operation of three nursing homes. Houser was also ordered to pay $6,742,807 in restitution to Medicaid and Medicare and $872,515 in restitution to the IRS. According to court documents, Medicare and Medicaid paid Houser more than $32.9 million between July 2004 and September 2007 for food, medical care, and other services for nursing home residents. Evidence presented at trial showed that instead of providing sufficient care for the nursing home residents, Houser diverted more than $8 million of Medicare and Medicaid funds to his personal use. In addition to the health care fraud count, Houser was convicted of eight counts of deducting $806,305 in federal payroll taxes from his employees’ paychecks, but not paying that money over to the IRS.  Houser was also convicted of failing to file personal income tax returns for 2004 and 2005.

President of Oakland Roofing Company Sentenced for Tax Evasion Scheme
On August 8, 2012, in Oakland, Calif., Tae Son Lee, aka Mike Lee, the president of Westco Roofing Inc. was sentenced to 24 months in prison, three years of supervised release, ordered to pay $367,656 in restitution, and ordered to cooperate with the IRS to pay any outstanding tax liability, including interest and penalties. Lee pleaded guilty on April 4, 2012, to conspiracy to defraud the United States of tax revenue. According to the plea agreement and evidence presented in court at sentencing, Lee was the sole shareholder and corporate officer of Oakland based Westco Roofing Company Inc.  Lee established a series of shell companies to defraud the United States for tax years 2003 through 2008 by impeding the IRS in its assessment and collection of Social Security and FICA taxes.  To accomplish his scheme, Lee made “subcontractor” payments to conspiracy-controlled shell companies that had no real employees and performed no real work. Cash was withdrawn from the shell companies’ bank accounts and Westco employees received cash wages. Westco failed to report, withhold and pay the FICA taxes on these cash wages.  

Connecticut Man Sentenced for Operating Decade-Long Tax Evasion Scheme
On July 30, 2012, in New Haven, Conn., Sherwood Schaub, aka Andy Sherwood, was sentenced to 30 months in prison and two years of supervised release for operating a decade-long tax evasion scheme. He also agreed to cooperate with the IRS and to pay all back taxes, penalties and interest. On February 28, 2012, Schaub waived his right to indictment and pleaded guilty to two counts of tax evasion. According to court documents and statements made in court, Schaub has owned and operated an executive search business and other businesses that have used a variety of names, including Goodrich & Sherwood Company, Goodrich & Sherwood Associates, Inc., Whittenwood Associates, Inc., Whittenwood International, Inc., GSA International, Inc., Stanton Chase of New York and G&S Holding Limited Partnership. From approximately 1994 through 2006, Schaub’s business entities repeatedly failed to pay federal taxes that had been withheld from employees’ paychecks. During these years, the IRS assessed Schaub penalties for not paying the withholding taxes, but he did not pay these penalties. As part of the scheme, Schaub willfully attempted to avoid paying taxes by causing his business entities to operate under various names and his income to be paid in his wife’s name, rather than his own, in the form of checks and wire transfers to her bank account. Through this scheme, Schaub evaded paying $1,314,146 in taxes, interest and penalties. In addition, in 2005, Schaub received taxable income of $164,100 in the form of checks deposited into his wife’s bank account. He did not pay taxes on this income and did not file an income tax return for tax year 2005.  

Minnesota Woman Sentenced for Failing to Pay Employment Taxes Withheld from Employee Paychecks
On July 19, 2012, in Minneapolis, Minn., Doris Ruiz was sentenced to 12 months and one day in prison on one count of failure to pay over federal employment taxes. Ruiz was indicted on October 4, 2011, and pleaded guilty on January 17, 2012.  According to court records, between 2005 and 2007, Ruiz, the owner of Olen Staff Company, a temporary work agency in Minneapolis, deducted and collected federal employment taxes, including certain federal income taxes, such as Federal Insurance Contribution Act (FICA) taxes, from her employees’ wages. Under the law, she was required to pay those withholdings to the IRS. However, Ruiz failed to do so and, instead, used more than $150,292.00 in employee withholdings for her own personal benefit.

Kansas Business Man Sentenced for Tax Evasion and Bank Fraud
On July 16, 2012, in Kansas City, Kan., James Clark, Overland Park, Kan., a former owner of the Kansas City Knights basketball team, was sentenced to 51 months in prison and ordered to pay more than $1.3 million in restitution. Clark pleaded guilty to one count of tax fraud and one count of bank fraud. According to court documents, Clark withheld payroll taxes from employees of his company, SWISH Holding Corp., while failing to pay more than $502,000 to the IRS. He diverted the funds and used them for his own purposes, including the operation of the basketball franchise. Clark also admitted submitting false information to a bank when he applied for a line of credit. He overstated the income, profits and assets of SWISH. He gave the bank purported copies of federal income tax returns for SWISH for 2002 and 2003. The returns had not actually been filed with the IRS and falsely overstated SWISH’s income. Additionally, as a personal guarantor of the loan, Clark gave the bank statements that over-stated the value of the Kansas City Knights and misrepresented that he had an ownership interest in the American Basketball Association.

President of Florida Employer Solutions, Inc. Sentenced on Tax Charges
On July 12, 2012, in Orlando, Fla., Luis Armando Ferrer, of Pembroke Pines, was sentenced to 24 months in prison and ordered to pay $640,707 in restitution. According to court documents, Ferrer was the President of Florida Employer Solutions, Inc. (FES).  FES’s business included performing payroll services for client companies and collecting, accounting for, and paying over social security, Medicare taxes, and federal incomes taxes to the IRS on behalf of those companies. Instead of paying this money over to lRS, Ferrer diverted it to his own personal bank account. He used it, in part, to start a landscaping business, Florida Outdoor Impressions, lnc.

Employee Sentenced on Tax Charges
On July 11, 2012, in Memphis, Tenn., Christopher Jones was sentenced to 24 months in prison, three years of supervised release and ordered to pay $287,000 in restitution to the IRS. According to court documents, Jones pleaded guilty on February 1, 2012, to obstructing or impeding the administration of Internal Revenue laws and making false statements to federal agents. Jones admitted that he collected $146,458 in employee withholding taxes from Rippee Rehab, Inc.; Rippee Rehab; Rippee Rehab, LLC; and Dental Connection East, PC, and then converted the funds for his personal use rather than sending the funds to the IRS.

Owner of Virginia Business Sentenced for $1.1 Million Tax Fraud  
On June 29, 2012, in Alexandria, Va., Willard Douglas Kerr, of Phoenix, Ariz., was sentenced to 24 months in prison, three years of supervised release, and ordered to pay $1,111,352 in restitution. According to court records, from 2003 through 2009, Kerr operated DK Coatings LLC, a painting and wall covering company in Manassas, Va. He was responsible for collecting, accounting for, and paying over employment taxes on behalf of DK Coatings employees to the Internal Revenue Service. From at least September 30, 2004, through December 31, 2009, Kerr withheld trust fund taxes from his employees’ paychecks but did not pay over those taxes to the IRS. From 2003 through 2009, Kerr also failed to pay the employer matching portion of FICA taxes. Kerr failed to pay over more than $1.1 million in taxes. Kerr admitted that he spent the money he withheld from his employees’ paychecks on other aspects of the business and on personal expenses, including purchasing multiple vehicles and repairing his swimming pool.  

Former Operators of Texas Medical Center are Sentenced Following Tax Convictions
On June 15, 2012, in Lubbock, Texas, Herschel A. Breig and James Cheek, both of Springfield, Mo., were each sentenced to 60 months in prison and ordered to pay a $10,000 fine and $5,049,875 in restitution. In addition, Breig and Cheek have paid a total of $120,000 in restitution to the individual victims identified by the U.S. Department of Labor. Breig and Cheek each pleaded guilty in February 2012 to one count of failure to pay over payroll taxes and aiding and abetting. According to court documents, in March 2006, Breig and Cheek acquired control of the Highland Medical Center (HMC), located in Lubbock, Texas, after Shiloh Health Services purchased the clinic. From March 2006 to May 2008, Cheek controlled every aspect of HMC's business affairs and Breig controlled HMC’s financial business affairs, including paying HMC's payroll taxes, federal income taxes, Federal Insurance Contributions Act (FICA) taxes and Medicare taxes. During 2006, 2007 and 2008, HMC withheld payroll taxes from employees’ paychecks, but from December 2006 through May 2008, HMC made no payments to the Internal Revenue Service.

New York Certified Public Accountant (CPA) Sentenced for Failing to Pay Employment Taxes
On June 12, 2012, in New York, N.Y., Silford Warren, of Queens, N.Y., was sentenced to 24 months in prison and ordered to pay $184,263 in restitution to the IRS. Warren pleaded guilty on December 9, 2011, to willful failure to pay over employment taxes on behalf of his accounting business, Silford  Warren, CPA PC. According to court documents, from 2006 through 2008, Warren under-reported his employees’ salaries on tax filings with the IRS.  The court ordered restitution includes the employment taxes he failed to pay over from his employees and his obligation, as an employer, to pay over a matching portion of those employment taxes, as well as the tax loss resulting from his filing false corporate income tax returns for 2005 through 2008.

Ohio Man Sentenced on Tax Conviction
On June 7, 2012, in Cleveland, Ohio, Michael R. Tucker, of Canton, Ohio, was sentenced to 15 months in prison and three years of supervised release. Tucker pleaded guilty on March 27, 2012, to charges of willful failure to pay withheld federal income and FICA taxes to the Internal Revenue Service and filing a false individual income tax return. According to the Indictment, from 2004 through 2008, Tucker operated and was the majority partner and general manager of Computology, LLC. In that capacity, Tucker was required to pay over federal income taxes and Federal Insurance Contributions Act (FICA) taxes that the business withheld from the wages of its employees. From December 2005 through March 2008, Tucker willfully failed to pay over taxes totaling $263,188 that had been withheld from the employees. The indictment also charged Tucker with filing false individual income tax returns for 2005, 2006, and 2007. The indictment alleged that on those returns, Tucker claimed federal income tax withholding totaling $34,775, which he knew had not been paid over to the Internal Revenue Service and, as a result, he received tax refunds to which he was not entitled.

Maryland Business Owner Sentenced for Failing to Pay Employment Taxes

On June 1, 2012, in Greenbelt, Md., Richard Stewart, of Mitchellville, Md., was sentenced to 24 months in prison and ordered to pay $5,414,647 in restitution to the Internal Revenue Service (IRS). According to the plea agreement and criminal information, from at least 2003 through 2008, Stewart owned and operated Montgomery Mechanical Services, a company that installed plumbing, heating, and air conditioning in commercial buildings. From 2003 through at least 2008, Stewart did not collect, truthfully account for and pay over approximately $3,969,337 in employment taxes from his employees’ wages.  

California Restaurant Owners Sentenced on Tax Fraud and Other Federal Charges

On April 24, 2012, in Oakland, Calif., Marino Sandoval and his wife, Nicole Sandoval, were sentenced on various immigration, Social Security and tax charges related to the operation of their San Francisco Bay area restaurant chain, El Balazo.  Marino Sandoval was sentenced to 41 months in prison. Nicole Sandoval was sentenced to five years probation and 12 months of community confinement. They were ordered to pay $2,216,010 in restitution to the Internal Revenue Service (IRS).  According to court documents, the Sandovals owned and operated the El Balazo Restaurants with Marino Sandoval’s brother, Francisco Sandoval.  Marino and Nicole Sandoval acknowledged that they were responsible for withholding federal taxes, including employment and unemployment taxes, from their employees’ pay. Nicole Sandoval admitted that she under-reported the employees correct wages to the payroll company that the defendants used to prepare the tax returns. Marino and Nicole Sandoval admitted that, based upon their actions, the amount of employment taxes paid to the Internal Revenue Service was understated. In addition, Marino Sandoval also admitted to hiring employees he knew were not legally authorized to work in this country.  Nicole Sandoval also pleaded guilty to misusing El Balazo employees’ social security numbers that were provided to the Social Security Administration and the IRS. Between 2002 and 2007, Nicole Sandoval submitted, on behalf of El Balazo, the employer’s quarterly contribution and wage reports to the Social Security Administration. The reports included the names of undocumented alien employees receiving wages from their employment. In court, Nicole Sandoval admitted that she was aware that the social security numbers she submitted were false and were not the social security numbers assigned to the employees as reported.  Francisco Sandoval, of Alameda, Calif., was sentenced on December 8, 2010, to three years probation for failure to account and pay over payroll taxes and for harboring illegal aliens for financial gain. He was also ordered to pay $50,000 in restitution to the IRS.

Missouri Business Owner Sentenced for Failing to Pay $1.1 Million in Payroll Taxes

On April 18, 2012, in Springfield, Mo., Gregory Crocker was sentenced to 30 months in prison and ordered to pay $1,586,024 in restitution.  According to court documents, Crocker pleaded guilty to failing to account for and pay over to the Internal Revenue Service (IRS) the federal income taxes and Social Security and Medicare taxes deducted from employee paychecks.  Crocker was an owner and the executive officer of a cemetery and marketer of pre-need funeral services in Joplin, Mo.  Crocker admitted that for the quarters ending March 31, 2002, through March 31, 2010, he failed to pay over payroll taxes to the IRS, and to file employers' federal quarterly income tax returns. The total tax harm Crocker caused was $1,152,550.

Extradited Defendant Sentenced for Tax Fraud in Employee Leasing Scheme

On April 18, 2012, in Miami, Fla., Lucia Kanis was sentenced to 27 months in prison and ordered to pay $1,973,266 in restitution. On the same day, Kanis pleaded guilty to one count of conspiring to impede and obstruct the Internal Revenue Service in the collection of payroll taxes as a part of an alien employee leasing scheme. Kanis, who previously lived in Coral Springs, Florida, fled the United States to avoid prosecution. She was extradited from Italy to the United States to face the federal charges filed against her in 2005 for her role in a nationwide employee leasing conspiracy. According to the indictment, Kanis and her co-defendants conspired to provide unauthorized workers, mostly Eastern Europeans who had entered the United States on tourist visas, to American companies with whom the defendants had contracted to provide legally authorized foreign workers. The co-defendants brought more than 550 illegal aliens into the United States. The alien workers obtained tourist visas to enter the United States and were employed illegally in the Midwest and Southeastern United States on farms, dairies and factories. The defendants contracted with American employers to provide workers, for whom the defendants were to pay payroll taxes and workers’ compensation deductions. The defendants did not pay the taxes or workers’ compensation deductions.  During her plea hearing, Kanis admitted that from 2000 to 2002, she participated in a scheme through which she failed to pay more than $1,973,266 in payroll taxes.

Two Former Executives of Payroll Services Company Sentenced for Conspiracy on Wire and Tax Fraud Charges

On April 11, 2012, in Newark, N.J., the former vice president of operations and the former director of sales for a payroll services company based in Hoboken, N.J., were both sentenced to prison for defrauding clients of almost $1 million and failing to pay $400,000 in taxes. Jose Figueroa, of Northampton County, Pa., was sentenced to 41 months in prison and Carlos Chorro, also of Northampton, was sentenced to 12 months in prison. Both men previously pleaded guilty to Informations charging them with one count each of conspiracy to commit wire fraud and one count each of subscribing to false tax returns. According to court documents and statements made in court, from January 2008 through November 2009, Figueroa and Chorro conspired to enrich themselves by manipulating the company computer system to divert clients’ payroll tax funds to bank accounts and monetary devices controlled by Figueroa and Chorro. Specifically, Figueroa, who was responsible for setting up the computer files that allowed money to be transferred from clients’ bank accounts to the company's tax accounts and thereafter to the IRS, manipulated the company computer files to divert clients’ tax funds onto prepaid debit cards controlled by Figueroa and Chorro. Both Figueroa and Chorro then used the diverted funds for personal expenditures. About 128 cash transactions totaling $306,140 were deposited into bank accounts controlled by Figueroa, and 200 transactions totaling $278,125 were deposited into bank accounts controlled by Chorro. From July 2009 through November 2009, Figueroa caused 24 wire transfers totaling $588,366 to be transferred from clients’ bank accounts to a bank account controlled by Figueroa.  Around September 25, 2009, Figueroa transferred $95,000 by bank check from a bank account controlled by Figueroa to Chorro. For the tax years 2008 and 2009, Figueroa and Chorro did not disclose to the IRS the income they received in connection with their conspiracy. Figueroa failed to disclose $894,477, resulting in a tax loss to the United States of $278,477. Chorro failed to disclose $373,125, resulting in a tax loss of $107,184. In addition to their prison terms, Figueroa and Chorro were ordered to serve three years each of supervised release. Figueroa has agreed to pay $469,737 in restitution to victims, $278,133 to the IRS and forfeit $438,000. Chorro was ordered to pay $373,125 in restitution and forfeit $184,000.

Colorado Man Sentenced for Failure to Pay Over $1.3 Million to the IRS and Theft from 401(k) Plan

On April 4, 2012, in Denver, Colo., John C. Walshe was sentenced to 46 months in prison, three years of supervised release, and ordered to pay $1,330,333 in restitution to the Internal Revenue Service (IRS).  Walshe was convicted by trial jury on November 14, 2011, for failure to pay taxes and theft from an employee benefit plan.  According to court records, as well as evidence presented at trial, Walshe was the owner and principal officer of Finzer Business Systems of Colorado, Inc., dba Finzer Imaging Systems, located in Denver.  Walshe was required to withhold from payroll checks issued to his employees federal income taxes on their taxable wages and salaries, Social Security taxes and Medicare taxes. Walshe and his company, Finzer, were required to pay the employer's matching portion of Social Security and Medicare taxes which he failed to pay to the IRS.  During the period of quarters ending June 30, 2005, through December 31, 2007, Walshe deducted and collected from Finzer employees, federal income taxes, Social Security taxes, and Medicare taxes totaling over $900,000.  However, Walshe willfully failed to pay the IRS the money due to the federal government. Furthermore, Walshe did unlawfully and willfully abstract and convert to his own use money in the approximate amount of $18,853 of Finzer Business Systems of Colorado, Inc. 401(k) Plan and a fund connected with such plan.  Specifically, from June 15, 2006 through December 31, 2006, Walshe withheld money from employees' pay checks that the employees elected to be paid to their 401(k) plan; however, Walshe failed to pay this money over to the plan.

Wisconsin Woman Sentenced for Tax Fraud

On March 16, 2012, in Milwaukee, Wis., Connie Sax was sentenced to six months in prison and six months home confinement and ordered to pay $168,091 in restitution to the IRS for tax fraud.  According to court documents, Sax was the owner and former operator of Connie’s Day Care, a child care center that she had operated in Kenosha.  From the third quarter of 2005 through the first quarter of 2009, Sax withheld more than $168,000 from her employees but failed to pay the money to the Internal Revenue Service.  She used these funds for her own benefit.

Florida Man Sentenced for Tax Fraud

On February 22, 2012, in Miami, Fla., Osvaldo Martinez, of Hollywood, Fla., was sentenced to 24 months in prison.  According to the plea agreement, Martinez operated Clinicas Finlay, Inc., a medical services company in Miami-Dade County until 2007.  Although Martinez withheld employee payroll taxes from his employees’ salaries, he failed to pay $1,781,294 to the IRS, as required by law. In November 2011, Martinez pleaded guilty to one count of willfully failing to pay to the Internal Revenue Service federal income taxes.

New York Man Sentenced on Tax Fraud Charges

On February 21, 2012, in Rochester, N.Y., Jeffrey Sykes, of Canandaigua, N.Y., was sentenced to 96 months in prison, three years of supervised release, and ordered to pay $3,714,649 in restitution. According to the plea agreement, Sykes owned and operated Paybooks, Inc., a payroll servicing company that serviced approximately 1,100 clients in Western New York area.  Between January 1, 2008, and June 30, 2009, Sykes received from Paybooks' clients proceeds that were to be used to pay employment taxes on behalf of the clients. However, Sykes failed to remit the funds to the appropriate taxing agencies. In addition to not paying over employment tax liabilities, Sykes failed to file Forms 941 on behalf of the clients. In an effort to conceal his fraudulent conduct, Sykes falsely represented to his clients that Paybooks had filed the Forms 941, and paid the employment taxes by mailing to the client’s letters, stating that the returns and all tax payments had been filed. 

Business Owner and Employee Sentenced for Conspiring to Defraud the IRS

On February 3, 2012, in Pittsburgh, Pa., Richard Swartz and Richard J. Connell were sentenced in federal court on their convictions of conspiracy to defraud the Internal Revenue Service.  Swartz, of Coraopolis, Pa., was sentenced to 15 months in prison, three years of supervised release and pay a $30,000 fine.  Connell, of Pittsburgh, Pa., was sentenced to 12 months and one day in prison and three years of supervised release.  According to information presented to the court, Swartz owned and controlled Ace Tire and Parts, Inc., a retail auto parts and repair business, and Mariclare of Pa., doing business as Installer's Supply, a wholesale automobile supply and parts business.  Connell was an employee and the controller of Ace Tire and Parts, Inc., and also performed financial services for Mariclare of Pa.  From January 2000 through January 2006, Swartz and Connell conspired to defraud the Internal Revenue Service (IRS), by defeating and obstructing the IRS in the collection of income and employment taxes, as well as filing false tax returns.

Arkansas Man Sentenced on Bank Fraud and Failure to Pay Payroll Tax

On February 1, 2012, in Little Rock, Ark., Scott Keith Voss, of Jonesboro, Ark., was sentenced to 33 months in prison, five years of supervised release and ordered to pay restitution of $450,000 to a bank and $148,564 to the Internal Revenue Service (IRS). Voss, who served as pastor and president of a church in Jonesboro, pleaded guilty to one count of bank fraud and one count of willful failure to pay over tax in November 2011. Voss admitted during his plea hearing that from September 2007 until June 26, 2010, he devised a scheme to defraud a bank.  As part of the scheme, Voss applied for a loan from the bank, pledging as collateral the Jonesboro worship center real estate where he served as pastor. Voss then failed to obtain appropriate board of directors' authorization to so encumber the church real estate.  Additionally, Voss admitted that from 2006 through 2010, the church withheld tax payments from its employees' paychecks. However, through this same period, the church failed to make any payments to IRS of these withholdings. 

Former Owner of Temporary Labor Firm Sentenced for Bribery and Tax Scheme

On January 26, 2012, in Camden, N.J., Channavel “Danny” Kong, of Philadelphia, Pa., was sentenced to 24 months in prison, three years of supervised release and ordered to cooperate fully with the IRS in paying his outstanding federal tax obligations and pay the state of New Jersey $15,000 in restitution.  According to court documents and statements made in court, from 2006 to 2009, Kong owned and operated Sunrise Labor, which was in the business of providing temporary employees to client businesses, including businesses located in New Jersey.  During this time period, Kong admitted that he made illegal cash payments to Joseph Rivera, a senior investigator with the New Jersey Department of Labor & Workforce Development ’s Division of Wage and Hour Compliance. Kong admitted he paid Rivera bribes totaling approximately $55,281 with the intent to influence Rivera not to conduct audits and inspections, including inspections and audits examining Sunrise’s compliance with state payroll tax obligations.  Kong also admitted that he was responsible, as the operator of Sunrise, for withholding, collecting, and accounting for and paying to the U.S. all employment taxes imposed by the Internal Revenue Code and that he willfully failed to collect and truthfully account for these taxes, which caused a tax loss to the IRS of between $80,000 and $200,000.

Missouri Business Owner Sentenced for Failing to Pay Employment Taxes

On January 24, 2012, in Springfield, Mo., Robert Landis was sentenced to 37 months in prison and ordered to pay $6.26 million in restitution for failing to pay employment taxes.  According to court documents, from December 2003 until June 2007, Landis was the owner of Priority Personnel of Missouri and Priority Personnel of Kansas, temporary employment agencies.  Landis was also the owner of Loma Landis LLC, which managed residential structures known as villas and operated nearby golf courses. Landis operated Loma Landis from 2005 to 2009. Each of those firms deducted payroll taxes from employees’ pay, however, he failed to truthfully account for or pay to the IRS payroll taxes that were deducted and withheld from the paychecks of Priority Personnel of Missouri employees.

Virginia Businessman Sentenced for Tax Evasion Scheme

On January 20, 2012, in Alexandria, Va., Russell Fournier, of Stafford, Va., was sentenced to 25 months in prison and three years of supervised release for failing to pay more than $700,000 in employment taxes from 2000 to 2008.  According to court documents, Fournier was a co-owner of Virginia Mobile Homes, Inc. (VMH), a Virginia corporation that sold mobile home trailers.  In that capacity, Fournier was responsible for VMH’s tax and financial affairs, including the filing of VMH’s quarterly employment tax returns and paying over to the IRS the Federal Insurance Contributions Act and federal income taxes that were withheld from VMH employees.  For nearly a decade, Fournier failed to file his company’s tax returns and pay to the IRS his company’s taxes.  As a result, Fournier deprived the federal government of $722,485 between 2000 and 2008.  In that time, Fournier used company funds to purchase for himself and his family luxury cars and trips abroad.

Virginia Woman Sentenced for Tax Evasion

On December 22, 2011, in Richmond, Va., Kim Jenkins Brandveen, of Petersburg, Va., was sentenced to 60 months in prison and three years of supervised release on her conviction for tax evasion.  According to court documents, Brandveen admitted being the owner of Healthcare Solutions Medical Supply, LLC, a business that sold durable medical equipment and provided home health services.  Brandveen directed the withholding of federal employment taxes from the paychecks of that business’s employees, but regularly and systematically failed to pay those taxes over to the Internal Revenue Service (IRS), instead using those funds for other business ventures and personal expenses.  When the IRS undertook collection efforts, Brandveen shut down that business and abandoned its bank accounts.  She then operated as Healthcare Solutions Service Corporation, a virtually identical business performing largely the same functions from the same location with the same employees.  Healthcare Solutions Service Corporation also failed to pay over employees’ withheld employment taxes to the IRS, again using them for Brandveen’s other business ventures and personal expenses.

Connecticut Accountant Sentenced for Stealing from Clients and Failing to Pay Employment Taxes 

On December 20, 2011, in Hartford, Conn., Felix Robert LaSaracina, of Norwich, was sentenced to 63 months in prison and three years of supervised release for defrauding clients of approximately $4.1 million and for failing to pay more than $700,000 in employment taxes.  According to court documents and statements made in court, LaSaracina, the owner and operator of F. Robert LaSaracina CPA, LLC, provided accounting and tax preparation services to clients in the New London and Norwich areas and served as the trustee for a series of trusts set up by a family for the benefit of their three children.  As part of a scheme to defraud, LaSaracina falsely represented to numerous individuals and clients that he had investment opportunities in which their money would be invested in real estate, that the investment would pay 8 percent interest and other false promises. There were no actual investment opportunities and LaSaracina used the invested funds for his own benefit.  To create the appearance of legitimacy to prospective investors, he prepared official-looking documents or investment contracts termed “Promissory Note(s)”.  As a trustee, LaSaracina controlled and was responsible for managing the assets of the trusts, including the real estate holdings owned by the trusts.  LaSaracina took out a series of mortgages using the real estate that was owned by the trusts as collateral.  Through this scheme, LaSaracina diverted more than $1.2 million in mortgage funds for his own personal use.  In addition, between 2005 and 2010, LaSaracina failed to remit to the Internal Revenue Service approximately $734,359 in federal income taxes and Federal Insurance Contributions Act (FICA) taxes that he had collected from the wages of employees of his business.

Ohio Man Sentenced for Failing to Pay Employment Taxes

On December 14, 2011, in Cleveland, Ohio, Charles J. Matthews, of Shaker Heights, Ohio, was sentenced to 15 months in prison after pleading guilty to six counts of willful failure to collect or pay over taxes.  According to court documents, Matthews was the senior pastor at Mt. Sinai Baptist Church, located in Cleveland, as well as chief executive officer of the council overseeing the financial affairs.  Matthews failed to pay Federal Insurance Contributions Act (FICA) taxes that were withheld from employees at Mount Sinai Baptist Church and Ministries over six quarters between October 2005 and January 2007.  The taxes were collected and withheld from Mt. Sinai employees, but Matthews willfully failed to report and pay over the monies to the IRS.  Instead, Matthews caused those funds to be used for other purposes, including transfers to the Pastor’s account for his own personal use. He also failed to report and pay over the employer’s share of the FICA taxes.

Owner of Maryland-Based Dental Corporation Sentenced for Failing to Pay Employment Taxes

On December 7, 2011, in Baltimore, Md., Jay Wayne Hustead, of Annapolis, Md., was sentenced to 24 months in prison, three years of supervised release and ordered to perform 200 hours of community service for failure to pay employment taxes related to his corporation, Hustead Dental and Orthodontics, PA. Hustead was also ordered to pay $65,913 in restitution and enter into a closing agreement with the IRS to pay the full amount of taxes due.  According to his plea agreement, Jay Hustead and his wife, Susan K. Hustead, operated Hustead Dental and Orthodontics, PA, which employed several dentists, technicians and office employees and, from 2001 to 2006, had annual payrolls exceeding $1 million.  From 2001 to 2006, Hustead Dental paid $25,000 in employment taxes and owed an additional $1.9 million.  For the tax quarter that ended on December 31, 2003, the period charged in the criminal information, the tax loss associated with the Husteads’ failure to pay to the IRS the employment taxes was $65,913. Susan K. Hustead also pleaded guilty to her role in the scheme and awaits sentencing.

Kansas Lawyer Sentenced on Employment Tax Evasion Charges

On November 18, 2011, in Kansas City, Kan., Rosie Quinn, a lawyer, was sentenced to 36 months in prison for failing to pay employment and personal taxes.  According to court documents, Quinn was the sole proprietor of Rosie M. Quinn Attorney At Law, where she usually employed three to five people to assist with her practice.  For calendar years 1995 through 2008, Quinn withheld more than $235,600 in payroll taxes from employees while submitting only $10,232 in payroll taxes to the IRS.  In addition, Quinn failed to pay $8,435 in personal income taxes in 2002 and $19,905 in personal income taxes in 2003. Altogether, Quinn failed to pay more than $1 million including interest and penalties, for payroll and personal income taxes since 1995.

Virginia Man Sentenced for Failing to Pay Over $1.7 Million in Taxes

On November 18, 2011, in Alexandria, Va., James Miller, of Lorton, Va., was sentenced to 18 months in prison, three years of supervised release and ordered to pay $965,006 in restitution for willful failure to collect, account for, and pay over withholdings from employees’ paychecks to the Internal Revenue Service.  Miller pleaded guilty in August 2011.  According to court documents, Miller served as the President and CEO of Team, Inc., a janitorial company located in Virginia from 1997 through 2008.  Team provided janitorial services for organizations and businesses located throughout the Washington, D.C., area.  Due to the positions he held at Team, Miller had a duty to collect, account for, and pay over federal taxes withheld from his employees’ paychecks.  According to court documents, beginning with the first quarter of 2003 and continuing through the fourth quarter of 2008, Team withheld federal taxes from employees’ paychecks, including Federal Insurance Contribution Act taxes, but Miller willfully and knowingly failed to pay over any of the withheld taxes to the government.  As a result of Miller’s conduct, the total federal tax loss was approximately $1.7 million.  

New York Contractor Sentenced in Payroll Tax Evasion Scheme

On November 15, 2011, in Manhattan, N.Y., Michael Mahoney was sentenced to 24 months home confinement, two years of supervised release and ordered to pay $306,765 in restitution.  According to the information, from 2004 through 2006, Mahoney, owner and operator of a construction company known as EMC of New York, took checks that represented receipts of EMC and, rather than depositing them in the corporate bank accounts, cashed them at a check-cashing establishment in New York City.  The cash that Mahoney received was used, in part, to pay employees all or a portion of their wages avoiding federal tax reporting and withholding requirements and defrauding the IRS of taxes owed under FICA. 

Internet Communications Firm Owners Sentenced

On November 9, 2011, in Washington, D.C., Frank G. Bivings and Isabelle Blanco, of Washington, D.C., husband and wife, and co-owners of The Bivings Group, Inc., were sentenced on charges stemming from the failure to pay more than $2 million in employment taxes to the Internal Revenue Service (IRS). Bivings was sentenced to 30 months in prison, three years of supervised release and required to perform 100 hours of community service. Blanco was sentenced to 10 months in prison, one year of supervised release and required to perform 100 hours of community service. Under terms of their plea agreements, both agreed to pay $2,420,927 in restitution. The Bivings Group, Inc. was a full service Internet communications business. In their plea agreements, Bivings and Blanco both admitted that between January 1, 2002, and June 30, 2008, The Bivings Group, Inc., failed to pay over to the IRS a total of $2,420,927 in employment taxes, which includes withholding and FICA taxes. Of this amount, $1,813,488 represented the money that was withheld from employees for taxes but was not paid over to the IRS.

Kentucky Man Placed On House Arrest for Tax Crimes

On November 8, 2011, in Cincinnati, Ohio, Andrew E. Williams, of Villa Hills, Kentucky, was sentenced to 15 months of home confinement and ordered to pay $49,991 in restitution to the Internal Revenue Service (IRS).  Williams pleaded guilty on August 11, 2011, to one count of failure to collect and pay over employment taxes to the IRS. According to court records, Williams was the owner of Club Aqua, Inc., which at the time was doing business under the name Club Ritz, withheld federal income tax, social security tax and Medicare tax from club employees’ paychecks but failed to pay the taxes to the IRS or file quarterly federal income tax returns as required.  Williams also admitted that he did not pay his employer’s portion of these taxes. The total loss to the IRS from Williams’ conduct was $81,712, with the unpaid portion of this loss being the restitution ordered at sentencing. Williams’ plea agreement also obligates him to file complete and accurate tax returns with the IRS for all tax years and periods up to and including the date of sentencing, which were required to be filed under U.S. tax laws but have not yet been filed. He also agreed to file with the IRS complete and accurate amended returns for all previously filed incomplete or inaccurate tax returns, and pay all taxes, penalties, and interest due and owing to the IRS.

Florida Owner of Construction Business Sentenced

On November 3, 2011, in Miami, Fla., Braynert  Marquez, of Miami, Fla., was sentenced to 30 months in prison, one year of supervised release and ordered to pay restitution of $280,362 to the IRS. Marquez pleaded guilty on July 21, 2011, to a one-count information charging him with aiding or assisting in the preparation of a false employment tax return. Specifically, the information charged that on or about January 31, 2008, Braynert Marquez willfully aided and assisted in and caused the preparation and presentation of a fraudulent Employer’s Quarterly Federal Tax Return, IRS Form 941, for Bema Group for the calendar quarter ending December 31, 2007. The return was fraudulent in that it underreported wages, tips, and other compensation paid to employees. According to court documents, Marquez operated and at least partly owned two construction companies known as Bema Block Corp. and Bema Group Corp.  From 2004 through 2007, Marquez paid employees of Bema Block and Bema Group “off-the-books” wages. Marquez failed to report these wages on quarterly employment tax returns and failed to withhold and pay over employment taxes on the wages.

Oregon Woman Sentenced for Evading Employment Taxes

On October 28, 2011, in Oklahoma City, Okla., Skoshi Farr, of Grants Pass, Oregon, was sentenced to 33 months in prison, three years of supervised release and ordered to pay $72,076 in restitution for tax evasion.  According to court documents, Farr’s deceased husband owned and operated an alternative medicine practice, Genesis Medical Center, in southwest Oklahoma City from 1984 until his death in December 1998.  In 1999, Farr owned and operated the clinic with the assistance of other medical personnel.  The clinic had collected, but failed to pay to the IRS, the quarterly employment taxes at the clinic for three quarters in 1999.  As the Administrator of the clinic, Farr was personally obligated to pay those taxes through the trust fund recovery penalty.  Farr evaded her obligation to pay these taxes by hiding assets from the IRS and using a nominee bank account in the name of a corporation controlled by her adult children.

Former Owner of Massachusetts Temporary Employment Agency Sentenced for Under-the-Table Scheme

On October 26, 2011, in Boston, Mass., Michael Powers, the former owner of a Stoughton temporary employment agency, was sentenced to 84 months in prison, two years of supervised release, and ordered to pay more than $9 million in restitution to the Internal Revenue Service (IRS), the Massachusetts Department of Unemployment Assistance, and two insurers. Powers and John Mahan, of Stoughton, were convicted in July 2011 of one count of conspiracy to defraud the IRS and various workers’ compensation insurers, one count of mail fraud and two counts of filing false tax returns.  According to court documents, between 2000 and 2004, Powers and Mahan owned and operated Commonwealth Temporary Services, Inc., which supplied hundreds of temporary laborers to businesses throughout Eastern Massachusetts. To avoid paying employment taxes, such as social security and Medicare, and to fraudulently reduce the businesses’ insurance premiums, Powers and Mahan under-reported their payrolls. To hide their fraud, they arranged to pay more than $30 million of their payroll in cash, under the table. The scheme avoided more than $9 million in federal and state payroll taxes and workers’ compensation insurance premiums.


 

Fiscal Year 2013 - Employment Tax Fraud Investigations

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