Examples of Employment Tax Fraud Investigations - Fiscal Year 2014
The following examples of employment tax fraud investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted.
Pennsylvania Businessman Sentenced for Tax Crimes
On Aug. 22, 2014, in Philadelphia, Pennsylvania, Harvey G. Bitler, Sr., of Shillington, was sentenced to 46 months in prison, three years of supervised release and ordered to pay restitution of $5,078,897. Bitler previously pleaded guilty to failing to pay over to the government income taxes, social security taxes and Medicare taxes withheld from his employees’ paychecks. According to court documents, Bitler was the owner of Big H Farms and BH Farms in Berks County, Pennsylvania. Big H Farms provided labor for mushroom growing facilities and BH Farms employed salaried employees associated with the operation and management of Big H Farms. The companies withheld Medicare and Social Security taxes (FICA taxes) and income taxes from their employees’ paychecks but, between 2007 and 2012, Big H made no payments to the Internal Revenue Service of these withheld taxes. Between 2008 and 2012, BH Farms also failed to pay over all the taxes withheld in the first quarter of 2008, and made no payments to the Internal Revenue Service for the remaining quarters of those years.
Construction Company Owner Sentenced for Fraud in Connection With Renovation of Federal Building
On Aug. 7, 2014, in Boston, Massachusetts, Wael Isreb, of Wrentham, was sentenced to four years of probation, including 18 months of home confinement, and ordered to pay $164,627 in restitution. In March 2014, Isreb and his co-defendant, Aluisio Dasilva, of Hudson, each pleaded guilty to conspiracy to commit mail fraud and false statements in connection with the renovation of the John W. McCormack Post Office and Courthouse in Boston. According to court documents, Isreb was the owner of Taunton Forms, a now-defunct concrete construction company that was retained as a subcontractor to perform work on the McCormack Building. Taunton Forms was paid in excess of $1 million for its work. Beginning in about December 2007, Isreb conspired with Dasilva and others to pay Taunton Forms workers less than the prevailing wage while certifying that they were being paid the prevailing wage. The defendants also falsely reported that workers had been laid off which permitted the workers to offset their lower wages with unemployment benefits. Isreb also avoided making fringe benefit payments as required. Finally, Isreb failed to withhold applicable payroll taxes. On July 15, 2014, Dasilva was sentenced to one year of probation and ordered to pay restitution of $10,840.
Maine Woman Sentenced on Immigration, Money Laundering and Tax Charges
On July 1, 2014, in Bangor, Maine, Mei Ya Zhang, of Waterville, was sentenced to 15 months in prison, three years of supervised release and ordered to pay more than $88,000 in restitution to the IRS. On June 5, 2013, Zhang pleaded guilty to harboring undocumented aliens for commercial advantage and private financial gain, money laundering conspiracy, and conspiracy to file false employer's quarterly federal tax returns. According to court records, between 2006 and 2011, Zhang was the manager of a Chinese buffet restaurant that brought undocumented aliens into Maine to work. Among other actions, Zhang paid the undocumented aliens under the table with cash generated illegally by their employment. Zhang filed numerous false quarterly employment tax returns in which the undocumented aliens were not disclosed and employment taxes were not properly withheld or paid.
Georgia Business Owner Sentenced for Impeding the Collection of Payroll Taxes
On June 30, 2014, in Atlanta, Georgia, Paulette Bryant, of Stockbridge, was sentenced to 36 months in prison, one year of supervised release and ordered to pay restitution of $2,914,931. Bryant previously pleaded guilty to obstructing and impeding the IRS’s collection of payroll taxes. According to court documents, Bryant owned and operated a temporary employment staffing business in Georgia. Between 1998 and 2009, except for brief periods during or relating to an IRS audit, Bryant’s business failed to make the required quarterly filings and to pay the IRS the payroll taxes owed by her employees and business. Bryant used the funds that should have been paid to the IRS to operate her company and fund her personal lifestyle. Additionally, Bryant formed and used new, overlapping corporate identities that had various names and that used various pseudonyms as corporate officers. Bryant’s intent was to delay and hinder the IRS’s efforts to collect the employment taxes that her business owed.
Business Owner Sentenced for Failure to Pay Employment Taxes
On May 29, 2014, in Springfield, Missouri, Kerry W. May, of Ozark, was sentenced to 12 months and one day in prison and ordered to pay $94,485 in restitution, in addition to the $373,200 in restitution that May has already paid. On Oct. 3, 2012, May pleaded guilty to two counts of failure to collect, or to truthfully account for and pay over employment taxes for his two corporations, Spring Creek Antiques, Inc. and Riverview Antique Center, Inc. According to court documents, from 2003 through 2009, May engaged in a deliberate scheme to avoid reporting or paying the trust fund taxes on approximately $373,200 he withheld from his employees’ paychecks. May withheld taxes from his employees’ pay, but simply pocketed the funds without reporting the withholding to the IRS or making the required trust fund payments.
Missouri Man Sentenced on Conspiracy Charges
On June 2, 2014, in St. Louis, Missouri, Jason Rauschelbach, of O’Fallon, was sentenced to 24 months in prison. Rauschelbach pleaded guilty to conspiring to defraud the United States and several banks. According to court documents, Rauschelbach was the CEO of The Mortgage Store, Inc. (TMS) and the president of Title America. The businesses were operating at a financial deficit in 2008. TMS incurred over $600,000 in federal employment tax liabilities in the first three quarters of 2008 that were not paid over to the United States. There were not sufficient funds available to fund the disbursements from TMS and, in addition, to meet all of the expenses incurred by TMS. In order to meet certain expenses and, at the same time, conceal the absence of adequate funds, Rauschelbach and others at TMS caused insufficient funds checks drawn on the checking accounts of both TMS and Title America to be deposited between those accounts in such a way that the “float” concealed the true balances of each account. The TMS account had a negative balance of approximately $850,000 in June, 2008, when the banks stopped accepting the floated checks. Court documents showed that Rauschelbach received substantial distributions from TMS and Title America in 2008 despite the federal employment tax delinquencies and other unpaid liabilities. In addition, he and others at TMS directed that TMS funds be paid on loans on properties at Tan Tar A Resorts in the Lake of the Ozarks, and for a ranch property in Breckenridge, Colorado. He was a partial owner of those properties. Rauschelbach submitted a false net worth statements to HUD and failed to pay over about $31,000 in employees’ withholdings for a 401K plan and health insurance. Restitution payments will be first directed to reimburse those employees.
Texas Business Owners Sentenced for Failing to Pay Taxes to IRS
On May 2, 2014, in Laredo, Texas, Jorge Montemayor and Leticia Reyna were sentenced to 30 months and 15 months in prison, respectively, and three years of supervised release. In addition, Montemayor was ordered to pay $368,025 in restitution while Reyna was ordered to pay $48,562 in restitution. Montemayor and Reyna pleaded guilty on Jan. 24, 2014, and Nov. 18, 2013, respectively, to failing to pay over employment taxes to the IRS. According to court documents, Montemayor was the chief financial officer of GDM Home Health Inc. and Reyna was the president of Professional Skilled Services Inc., both home health care businesses that provided basic skilled care in Laredo. In their roles, both had authority to conduct financial transactions and exercised signatory authority on the company's bank accounts. As part of the plea, Montemayor admitted he knowingly and willfully failed to pay approximately $368,025 of federal income and FICA and Medicare taxes withheld from employee wages from the year 2008 while Reyna admitted she failed to pay over to the IRS approximately $48,562 for the fourth quarter of 2008. In his plea agreement, Montemayor admitted that corporate funds were used for lavish trips to Europe and Las Vegas, sporting events, restaurants, jewelry and real estate. In her agreement, Reyna admitted that corporate funds were used for shopping, restaurants and private school expenses.
Owner of Trucking Company Sentenced for Failure to Collect and Pay Over FICA Taxes
On April 24, 2014, in Minneapolis, Minn., Marlin Dahl, owner of Dahl Trucking in Elmore, Minn., was sentenced to 12 months and a day in prison. Dahl was convicted on Dec. 3, 2013 of failure to collect and pay over Federal Insurance Contribution Act (FICA) taxes. According to the evidence presented at trial, from 2007 to 2010, Dahl failed to deduct more than $54,000 in FICA taxes from his employees’ payroll checks. Instead, Dahl recorded wage payments as “road expenses” incurred by Dahl Trucking employees, which were falsely treated them as reimbursements and not wages.
Businessmen Sentenced for Tax Fraud
On April 15, 2014 in San Antonio, Texas, Larry Kimes and Charles Pircher were sentenced to 144 months in prison and 132 months in prison, respectively, and three years of supervised release. Both men were each ordered to pay $132 million in restitution for their roles in a tax fraud conspiracy. According to court documents, Kimes was the manager of AccounTex Financial Services, LLC, and Pircher was the manager of a series of Professional Employer Organizations (PEOs) based in San Antonio, including Service Professionals. The PEOs entered into staff leasing agreements with various client companies to manage the companies’ payroll and insurance programs. Between 2002 and 2008, the defendants stole more than $130 million from the clients of a series of PEOs. Kimes, Pircher and other co-conspirators diverted to their own use and benefit clients’ monies that should have been paid for payroll taxes and insurance premiums.
Indiana Physician Sentenced for Failing to Pay Employment Taxes
On April 11, 2014, in Hammond, Ind., Ronald Eugene Jamerson, of Schererville, Ind., was sentenced to 12 months and one day in prison and ordered to pay $541,083 in restitution to the IRS. On Oct. 25, 2013, Jamerson pleaded guilty to one count of willfully failing to truthfully account for, collect and pay over employment taxes to the IRS. According to court documents, Jamerson is an otolaryngologist who opened his own medical practice in the late 1990s. Jamerson deducted and collected from his employees’ paychecks federal income taxes and employment taxes in the amount of $63,929 over the 11 tax quarters, but failed to file the employment tax returns and pay over the related employment taxes.
Dental Center Owner Sentenced for Tax Evasion
On April 7, 2014, in Indianapolis, Ind., Sally Metzner was sentenced to 24 months in prison. Metzner previously pleaded guilty to tax evasion and failing to withhold social security and Medicare taxes for her employees. According to court documents, Metzner owned Anderson Dental Center in Anderson, Ind., for more than 10 years. Metzner, who is not a dentist, has a background in accounting and bookkeeping and personally controlled all of Anderson Dental’s financial records. Metzner did not pay or file personal income taxes from 2006 to 2010. Metzner evaded income taxes through various means, including accounting for her own income from Anderson Dental as “miscellaneous expenses,” and accounting for numerous personal expenses through the business as if they were business expenses. Metzner also failed to withhold and pay over taxes she was obligated to pay for social security and Medicare on behalf of her employees. The employee’s pay stubs show that the appropriate amount of taxes were being withheld, however, Metzner did not pay any of this money to the IRS.
Maine Woman Sentenced on Immigration, Money Laundering and Tax Charges
On March 25, 2014, in Bangor, Maine, Mei Juan Zhang, of Fairfield, was sentenced to 14 months in prison, three years of supervised release and ordered to pay $54,288 in restitution to the IRS. Zhang pleaded guilty on April 18, 2013 to charges of harboring undocumented aliens for commercial advantage and private financial gain, money laundering and filing false employer's quarterly federal tax returns. According to court records, between 2009 and 2011, Zhang was the manager of the two restaurants in Waterville. In that capacity, she managed a Chinese buffet restaurant that brought undocumented aliens into Maine to work at the restaurants. Zhang paid them under the table with cash and filed numerous false quarterly employment tax returns in which the undocumented aliens were not disclosed and employment taxes were not properly withheld or paid. The investigation revealed that about half of the employees at the restaurant over that period were undocumented, and that the defendant’s activities concealed about $250,000 in wages and thwarted the collection of about $55,000 in employment taxes.
Business Owners Sentenced on Tax Charges
On March 17, 2014 in Los Angeles, Calif., Robert and Karen Burdett were sentenced to 18 months in prison, three years of supervised release and ordered to jointly pay $1,074,223 in restitution. The Burdetts pleaded guilty in November 2013 to embezzlement from an employee benefit plan and failure to collect or pay over tax. According to the plea agreements, beginning in January 1996, the Burdetts began serving as trustees for their employee retirement benefit plan. Beginning in June 2004, they fell behind in the transmission of funds withheld by employees from their respective paychecks for contribution to the retirement plan. By June 2006, the Burdetts stopped transmitting any funds employees withheld from their respective paychecks for contribution to the retirement plan, embezzling $102,327 from the employee-participants plan. In addition, from at least September 1996 to July 2007, the Burdetts were the responsible parties regarding the collection and payment of their employees’ federal income taxes and Federal Insurance Contributions Act taxes. During this time they failed to pay to the IRS approximately $971,896 in withheld trust fund taxes.
New Jersey Attorney Sentenced for Income Tax Evasion and Failing to Pay Payroll Taxes
On March 11, 2014, in Trenton, N.J., Lee Gottesman, of Toms River, N.J., was sentenced to six months in prison, six months of home confinement, three years of supervised release and ordered to pay $27,384 representing taxes owed from 2006 to the present. Gottesman, an attorney, previously pleaded guilty to an indictment charging him with one count of federal income tax evasion and one count of failing to pay payroll taxes for the employees of his law firm. According to court documents, Gottesman operated a law firm in Toms River. In 2002, the IRS filed a levy on Gottesman’s assets because of unpaid taxes. Gottesman then opened a sub-account, within his attorney trust account, in the name of his wife. His wife had never been a legal client of his. Gottesman ran nearly all of his personal and business expenses through the account, closing all other business and personal accounts in his name. His payments from the account included more than $90,000 in mortgage payments for his home; more than $17,000 in household expenses, including maintenance on his pool, landscaping services and construction costs; and thousands of dollars in other personal expenses, such as life insurance premiums, auto body repair work and personal credit card payments. The scheme allowed Gottesman to avoid paying personal income taxes on the hidden income. Gottesman also withheld payroll and other taxes from his employees’ pay, but never filed the required forms or turned the withheld payments over to the IRS. Gottesman specifically admitted he did not pay all his personal income taxes owed for 2006 or payroll taxes for 2009.
San Antonio Businessmen Sentenced for Money Laundering and Mail Fraud
On Feb. 21, 2014 in San Antonio, Texas, three individuals were sentenced for their roles in a $133 million tax fraud scheme. John Bean was sentenced to 72 months in prison, three years of supervised release and ordered to pay over $120 million in restitution. Bean pleaded guilty in March 2013 to money laundering and a mail fraud conspiracy. Pat Mire was sentenced to 36 months in prison, three years of supervised release and ordered to pay $10 million in restitution. Mire pleaded guilty in November 2011 to money laundering and a mail fraud conspiracy. Mike Solis was sentenced to 24 months in prison and three years of supervised release. Solis pleaded guilty in December 2012 to mail fraud conspiracy. A fourth defendant, John D. Walker II, was sentenced to five years’ probation and ordered to pay $450,000 restitution. Walker pleaded guilty in May 2012 to a Klein tax fraud conspiracy charge and a false statements charge. Two other co-defendants, Larry Kimes and Charles Pircher, have both pleaded guilty and await sentencing. According to court documents, between 2002 and 2008, the defendants participated in a scheme in which they stole more than $133 million from the clients of a series of Professional Employer Organizations (PEO) operated by the defendants. The PEOs entered into staff leasing agreements with various client companies to manage the companies’ payroll and insurance programs. The co-conspirators diverted to their own use and benefit clients’ monies that should have been paid for payroll taxes and insurance premiums.
New York Attorney Sentenced for Tax Violations
On Feb. 19, 2014, in Buffalo, N.Y., Edmund J. Renaud, of Olean, N.Y., was sentenced to 15 months in prison. Renaud was convicted of evading the payment of taxes involving his moving companies. According to court documents, Renaud failed to pay employment taxes for businesses he ran from 2002 through 2008. Renaud ran Southern Tier Moving and Storage, Inc., in Olean until 2002, when the IRS assessed over $48,000 in unpaid federal payroll taxes. Upon shutting down that entity, Renaud opened Southern Tier Moving and Storage, LLC, where from 2002 until 2006, Renaud similarly failed to pay over $86,000 in federal payroll taxes. Renaud provided false information to the IRS about bank accounts and other assets, including a truck he had gotten as a result of accumulating “comp” credits at a casino. Renaud also provided false information to the IRS in connection with filing an Offer in Compromise, including false claims that the company was out of business, failure to identify bank accounts and failure to disclose company assets.
Massachusetts Doctor Sentenced for Multiple Tax-Related Crimes
On Feb. 12, 2014, in Boston, Mass., Richard C. McGinn was sentenced to 30 months in prison and two years of supervised release. In 2013, a jury convicted McGinn, a doctor, of tax evasion, five counts of failing to pay over employment taxes and failure to file a tax return. According to court documents, from 2007 until 2009, McGinn owned and operated a medical practice in Greenfield, Mass. During that time, he evaded the payment of a tax liability of over $1 million which he had accumulated from 1987 to 2003. Among other things, McGinn paid personal expenses with corporate funds, and he used the bank account of a family member to conceal the income from the medical practice. During this time, McGinn also withheld employment taxes from the paychecks of his employees, and he kept the money for himself, rather than paying the money to the IRS as he was required to do. Additionally, McGinn failed to file corporate income tax returns for his medical practice.
New York Business Owner Sentenced for Failing to Pay Payroll Taxes
On January 29, 2014, in Buffalo, NY, John Creighton, of Bemus Point, N.Y., was sentenced to 12 months in prison and ordered to pay $663,627 in restitution for failing to pay payroll taxes. According to court documents, Creighton is the president and owner of Classic Brass Inc. (CBI) in Lakewood, N.Y. In 2010 and 2011, Creighton withheld payroll taxes from CBI employees. However, Creighton failed to make payroll tax payments to the IRS, and failed to file Forms 941.
North Carolina Woman Sentenced for Tax and Mortgage Fraud
On January 14, 2014, in Charlotte, N.C., Tega Burns, aka Tega Foy, was sentenced to 24 months in prison, two years of supervised release and ordered to pay $201,039 in restitution to IRS, $57,450 in restitution to Bank of America, and $48,483 in restitution to CIT Group Consumer Finance. In July 2012, Burns pleaded guilty to one count of failure to account for and pay over employment tax and one count of making a false statement on a loan application. According to court records, Burns was the owner of Family Homecare Services, a Charlotte-based company that provided in-home care services in the area from 2007 through 2011. Burns failed to pay a large part of the employment taxes her company owed for the relevant tax years. Burns had an outstanding employment tax liability of more than $200,000. To hide funds from the IRS and to evade payment of the outstanding taxes, Burns utilized nominees, including her son and her step-father. In addition, in May 2007, Burns obtained mortgage loans using false information, including fake employment documentation from her company, to purchase two homes in the name of another individual. Both of these homes were eventually foreclosed on, with losses to the banks.
Michigan Resident Sentenced for Filing False Tax Return
On November 4, 2013, in Detroit, Mich., Jason Syrek, of Adrian, Mich., was sentenced to 72 months in prison and ordered to pay $17,659,561 in restitution for healthcare fraud and filing false tax returns. According to court documents, from May 2008 to December 2010, Syrek operated a human resource company, CAS Resources of Adrian, Michigan. CAS Resources provided outsourcing of human resource services, such as payroll, taxes and employee benefits administration, including health care coverage. CAS collected $1.75 million in premiums from client companies in November and December 2010, but never paid the premiums to Blue Cross Blue Shield of Michigan. Syrek, as the Director of CAS Resources, filed a form with the IRS stating that CAS Resources paid $1,862,902 in payroll taxes. Syrek knew he had diverted these funds for his own personal use and only paid $633,332 in payroll taxes. In addition to this form for the third quarter of 2010, Syrek filed seven other forms with the IRS reporting payroll taxes that he did not pay. In total, from 2010 through 2011, Syrek’s tax due was $13.4 million. He admitted diverting these funds for personal use to buy beach front properties, several cars, a boat and investment properties.
Iowa Man Sentenced for Failing to Pay Withheld Taxes
On October 22, 2013, in Cedar Rapids, Iowa, Eric Holub, of Clarence, Iowa, was sentenced to 30 months in prison, three years of supervised release and ordered to pay $438,426 in restitution to the IRS. On July 12, 2013, Holub pleaded guilty to one count of failing to pay over to the IRS money he had withheld from his employees’ paychecks. According to court documents, Holub was the owner of Premier Security, a private security business previously located in Cedar Rapids, and had served as the President and Treasurer of the business from 2003 through 2011. Holub admitted that from January 2008 through December 2009, he was responsible for withholding income taxes and Federal Insurance Contributions Act (FICA) taxes from the pay of Premier Security employees and was responsible for forwarding those withholdings to the IRS. However, for six calendar quarters in 2008 and 2009, Holub failed to forward the money he withheld from his employees’ pay to the IRS. In the plea agreement, Holub admitted he also failed to pay to the IRS other taxes owed by Premier Security from 2008 through 2011.
Nebraska Man Sentenced for Employment Tax Fraud
On October 21, 2013, in Lincoln, Neb., John Stanley Clabaugh, Jr. was sentenced to 6 months in prison, three years of supervised release of which 6 months will be served as home confinement, and ordered to pay $135,109 in restitution. Clabaugh was the owner/operator of an insurance agency located in Crete, Nebraska. He and a secretary were the only full time employees, although there have been occasional part time employees. Clabaugh always withheld the federal income taxes and FICA taxes from his and his employees’ paychecks, until 2001 when he stopped paying these withheld funds over to the IRS and stopped filing the required quarterly forms. The total ‘trust fund’ taxes withheld from employee paychecks for the period of time covered by the indictment was $135,330.
Delaware Man Sentenced for Failing to Pay Over Payroll Taxes
On October 4, 2013, in Wilmington, Del., Charles Smith, of Bear, Del., was sentenced to 30 months in prison, three years of supervised release and ordered to pay $300,171 in restitution to the IRS. Smith pleaded guilty to ten counts of failure to truthfully account for and pay over payroll taxes. According to court documents, Smith was the Chief Executive Officer of eShowings, a company which provides online and telephone appointment services for real estate professionals. As the founder and CEO of eShowings, Smith was responsible for ensuring that employees’ payroll tax withholdings were paid over to the government. Instead, Smith took money deducted from employees’ paychecks and spent it personal items for himself and his family.