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.
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.