Examples of Employment Tax Fraud Investigations - Fiscal Year 2016
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.
South Jersey Man Sentenced for Hiring Illegal Immigrants, Failing to Collect Payroll Taxes
On September 8, 2016, in Camden, New Jersey, Phillip Hui, of Sicklerville, was sentenced to 15 months in prison, three years of supervised release and was ordered to pay restitution of $98,864. Hui previously pleaded guilty to conspiracy to obstruct and impede the IRS relating to the failure to collect, account for and pay payroll taxes and harboring illegal aliens. According to court documents, Hui and Kathy Lei, of Williamstown, owned New Eastern Cleaners in Voorhees Township. At various times in 2012 and 2013, Hui and Lei hired foreign nationals who did not have legal status in the United States. While working at New Eastern Cleaners, the undocumented immigrants lived in a house that was owned by Lei and two other individuals. When Lei filed Employer's Quarterly Federal Tax Return, Form 941, for all tax quarters in 2012 and the first three quarters in 2013, she only reported wages paid to legal employees of New Eastern Cleaners. She failed to report the wages and pay employment taxes for at least 13 undocumented immigrant employees in 2012 and at least 14 undocumented immigrant employees in 2013. By filing the false tax forms in 2012 and 2013, Lei and Hui failed to pay the IRS employment taxes of at least $97,104. Lei previously pleaded guilty to the same charges and her sentencing is scheduled.
Pennsylvania Businessman Sentenced for Tax Fraud
On September 19, 2016, in Harrisburg, Pennsylvania, Paul Biko was sentenced to 18 months in prison and ordered to pay restitution of $437,336. According to court documents, in 2008, Biko was the owner of three Harrisburg businesses: Clearview of Harrisburg, Clearview Landscaping and Clearview Builders. As owner, Biko controlled the financial affairs of the three companies including all business bank accounts. For the fourth quarter of 2008, Biko’s companies withheld employment taxes from employees but failed to pay to the IRS the federal income taxes and Federal Insurance Contributions Act (FICA) taxes due to the United States.
Tennessee Business Owner Sentenced For Failing to Pay More Than $8 Million in Employment Taxes
On August 19, 2016 in Jackson, Tennessee, Larry Thornton, of Germantown, was sentenced to 12 months in prison, two years of supervised release and ordered to pay restitution in the amount of $10,822,728 to the IRS. According to court documents, Thornton, was the majority owner, president and chief executive officer (CEO) of Software Earnings, Inc. (SEI), a Memphis company that produced and installed check processing. Thornton, as CEO and president of SEI and First Touch, had ultimate and final decision-making authority regarding SEI’s and First Touch’s business activities and had authority to exercise significant control over SEI’s financial affairs. Thornton was responsible for collecting, accounting for, and paying over to the IRS federal income taxes and Federal Insurance Contributions Act (FICA) taxes that were withheld from the wages of SEI and First Touch’s employees. Between 2007 and 2011, Thornton collected more than $6.8 million in employment taxes from SEI and First Touch employees’ paychecks, but failed to pay those collected taxes over to the IRS. Thornton also failed to pay his companies’ matching share of FICA taxes during those years. During the same years in which Thornton failed to comply with his employment tax obligations, Thornton spent more than $6.2 million from the business bank accounts on personal expenses. Thornton also failed to file personal and corporate income tax returns. Thornton's illegal conduct caused a tax loss of more than $8.9 million to the IRS.
Former Daycare Owner Sentenced For Failing to Pay $891,000 in Taxes
On July 29, 2016, in Kansas City, Missouri, Lynn Jordan, of Parkville, Mo., was sentenced to 24 months in prison without parole and ordered to pay $891,572 in restitution. On Feb. 22, 2016, Jordan pleaded guilty to failing to pay $891,572 in payroll and other taxes to the IRS. From 2009 to 2012, Jordan withheld employment taxes from her employees’ paychecks totaling $211,704, but failed to pay over the trust fund taxes she collected to the IRS. Jordan also failed to pay over the employer’s portion of Social Security tax and Medicare tax from 2009 to 2012, totaling $123,906. Additionally, Jordan failed to pay over employment taxes from 2004 to 2008 totaling $506,588. She also failed to pay over federal unemployment taxes from 2004 to 2012 totaling $22,294. In addition to the payroll taxes, Jordan failed to file tax returns for three years from 2009 to 2012. The balance due on those tax returns totals $27,079. During this time, Jordan spent a total of $320,738 on a large number of personal expenses from the business bank accounts. Jordan withdrew more than $150,000 in cash and paid more than $50,000 on the mortgage of her personal residence from the business bank accounts.
Construction Business Owner Sentenced for Employment Tax Fraud
On May 31, 2016, in Richmond, Virginia, Michael Manning, of Ashland, was sentenced to 18 months in prison, two years of supervised release and ordered to pay restitution of $677,350 to the IRS. Manning pleaded guilty on Feb. 23, 2016, to failing to collect, account for and pay over employment taxes for his masonry contractor construction companies. According to court documents, Manning was the President of Manning Construction and Manning-Carhen Construction. For the third and fourth quarters of 2014, Manning willfully failed to pay over more than $700,000 in employment taxes to the IRS. Additionally, Manning instructed his bookkeeper to create false financial statements for financial institutions to comply with existing loan covenants, encourage banks to lend new funds to the company, or enable the renewal of existing loans. Moreover, Manning used these same accounting techniques to conceal his use of over $500,000 in corporate funds for various personal expenses, including paying off a lien on his lake property.
Maryland Business Owner Sentenced for Failing to Pay Over $1.4 Million in Taxes
On April 11, 2016, in Washington, D.C., James T. Redding, of Reistertown, Maryland, was sentenced to 24 months in prison, three years of supervised release and ordered to pay $1,473,054 in restitution to the IRS. Redding pleaded guilty in August 2015 to attempted tax evasion and willful failure to collect or pay over tax. According to court documents, Redding was the president, sole shareholder and sole director of James T. Redding, Inc., doing business as JTR Inc., JTR Finishing Contractors, and JTR Construction. Redding filed false and fraudulent tax returns for James T. Redding, Inc., for the 2009 and 2010 calendar years. He did not file returns for the corporation for the 2011, 2012, and 2013 calendar years. In addition, for the tax years of 2009 through 2012, Redding filed false and fraudulent U.S. personal income tax returns on behalf of himself and his spouse. He and his spouse did not file a personal income tax return for the 2013 calendar year. Finally, from the beginning of the fourth quarter of the 2010 calendar year through the fourth quarter of the 2012 calendar year, Redding willfully failed to pay over all of the federal income tax and Federal Insurance Contributions Act (FICA) taxes withheld from JTR employees. Instead of paying over the taxes that he knew were due, he used those funds to pay JTR creditors and for the benefit of himself and his family members. In total, JTR did not pay over $873,054 that was due to the IRS.
Mississippi Man Sentenced for Failure to Pay Over Employment Taxes
On April 7, 2016, in Oxford, Mississippi, Larry Eifling, was sentenced to 24 months in prison and three years of supervised release for failing to account for, and pay over, taxes. According to court documents, Eifling conducted a business under the name Community Transfer Service, LLC. During the second quarter of 2009, ending on June 30, 2009, Eifling, through Community Transfer Service, LLC, deducted and collected $11,624 to pay toward his employees’ federal income taxes and Federal Insurance Contribution Act taxes. However, Eifling willfully failed to account for and pay over the funds due and owing for that quarter.
Former North Dakota Business Owner Sentenced for Failure to Pay Employment Taxes
On March 28, 2016, in Fargo, North Dakota, Tammy J. Devier, of Crary, was sentenced to 60 months of supervised probation, 12 months of home confinement and ordered to pay restitution of $377,163. Devier was convicted of willfully causing the failure to pay over employment taxes. According to court documents, between 2007 and 2010, Devier was the owner of Red Arrow Recruiters, LLC, a professional employment organization which provided various employment and payroll services to businesses. On about Feb. 1, 2010, Devier failed to pay the 4th quarter 2009 employment and payroll taxes she received from the companies she represented to the IRS. Over the course of a two-year period beginning in mid-2008 through 2009, Devier received, from her clients, quarterly taxes for the third and fourth quarters of 2008 and the first, third, and fourth quarters of 2009 totaling $377,163, but she failed to pay those taxes over to the IRS.
Colorado Man Sentenced for Failure to Pay Millions in Employment Taxes
On March 24, 2016, in Denver, Colorado, Lucilious J. Ward was sentenced to 26 months in prison, three years of supervised release and ordered to pay $5,955,231 in restitution to the IRS. Ward pleaded guilty on Jan. 3, 2014, to failure to account for and pay over the employment taxes withheld from his employees’ paychecks and making a false claim against the United States. According to court documents, since at least 2004, Ward owned and operated Global Access, which provided public and private transportation services. From January 2005 through the second quarter in 2011, Ward withheld employment taxes from Global Access’s employees’ paychecks. Ward knowingly and willfully failed to file with the IRS Forms 941 (employment tax forms) as required by law, failed to pay to the IRS the employment taxes that Ward had withheld from their paychecks and failed to pay the required employer’s matching portion of FICA. Rather than paying the IRS the employment taxes owed by Global Access, Ward spent it on a variety of expenses. Additionally, in 2010, Ward filed with the IRS an amended personal tax return (Form 1040X) for the tax year 2007 which falsely claimed that $76,479 of federal income tax withholdings had been withheld from his paychecks by Global Access and paid to the IRS. Ward intentionally filed this false return so that he would be assessed a refund of $76,479 to which he was not legitimately entitled.
Former Business Owner Sentenced for Criminal Employment Tax Violations
On March 24, 2016, in Phoenix, Arizona, Gregory S. Ott, of Prescott, was sentenced to 12 months in prison and three years of supervised release. Ott was also ordered to pay a $10,000 fine and fully cooperate with the IRS in the determination and collection of amounts owed. Ott had previously pleaded guilty to evasion of payment of tax. According to court records, Ott owned and operated Xpress Pay, Inc., a professional employment organization in Scottsdale. The organization contracted with small business owners to provide payroll services including the preparation of federal employment tax returns and the payment of employment taxes owed by these small businesses to the IRS. Ott and Xpress Pay collected the taxes directly from their clients by accessing the clients’ bank accounts. Instead of making the required federal tax payments to the IRS in full, Ott transferred substantial amounts of money to his personal bank accounts and used the money to pay his own expenses. In 2010, Ott’s conduct resulted in a $568,279 tax loss.
Pizzeria Owner Sentenced for Failing to Pay Employment Taxes
On March 22, 2016, in Oakland, California, Frank Eugene Gemignani III, of Concord, was sentenced to 12 months in prison, one year of supervised release and ordered to pay $255,452 in restitution for failing to pay over employment taxes. According to the plea agreement, Gemignani operated Pyzano’s Pizzeria in Castro Valley from 1991 through 2012. As the sole proprietor, Gemignani exercised control over Pyzano’s business affairs, including signing and filing Pyzano’s tax returns and paying to the IRS payroll taxes withheld from Pyzano’s employees’ paychecks. From April 1, 2008, through December 31, 2010, Gemignani deducted and collected approximately $184,267 in federal income taxes and Federal Insurance Contributions Act taxes (FICA) from Pyzano’s employees’ wages, but he failed to pass these taxes on to the IRS. Additionally, Gemignani failed to pay at least $63,333 of FICA and Federal Unemployment Tax Act (FUTA) taxes that the business, Pyzano’s, itself owed for 2009 and 2010. Gemignani also claimed a credit for amounts withheld from his Pyzano’s paychecks on his U.S. Individual Income Tax Return, Form 1040, for 2007, even though he knew he had never paid those withholdings over to the IRS.
Roofing Contractor Sentenced for Pocketing Employee Payroll Tax Withholdings
On March 15, 2016, in Wilmington, Delaware, Robert Smulski was sentenced to 12 months and one day in prison, two years of supervised release and ordered to pay $484,339 in restitution to the IRS. On Sept. 30, 2015, Smulski pleaded guilty to willful failure to pay over employment taxes. According to court documents, Smulski was the owner and President of Smulski Enterprises, Ltd., a roofing company. Smulski was responsible for ensuring that the employees' payroll tax withholdings were paid over to the government. Between 2006 and 2012, Smulski Enterprises withheld payroll taxes from its employees' paychecks. Instead of paying that money over to the IRS, Smulski used the money to pay himself and his personal creditors.
Virginia Business Owner Sentenced on Tax Charges
On Feb. 18, 2016, in Abingdon, Virginia, Thomas Leroy Watson was sentenced to 18 months in prison and ordered to pay restitution of $110,822 to the IRS. Watson previously pleaded guilty to failure to collect and pay taxes. According to court documents, Watson was the former owner of Wat-Co, a Washington County metal fabricating business. Watson failed to pay payroll taxes for his employees between 2010 and the first quarter of 2012.
New Hampshire Drywaller Jailed for Under-The-Table Payroll Scheme
On Feb. 9, 2016, in Concord, New Hampshire, Cruz E. Galvan, of Manchester, was sentenced to 18 months in prison and ordered to pay $786,553 in restitution to the IRS. Galvan previously pleaded guilty to federal employment tax. According to court documents, from April 2010 until December 2012, Galvan paid the employees of Four Star Drywall with vouchers instead of with checks. He instructed those employees to present the vouchers to a local check cashing business to which he had previously provided funds and instructions to pay the vouchers upon presentment in cash. Galvan he did not report to the IRS the wages he paid in that fashion, thereby evading federal income tax withholding and Social Security, Medicare and federal unemployment taxes.
Missouri Business Owner Sentenced for Employment Tax Scheme
On Jan. 26, 2016, in Kansas City, Missouri, Joseph Patrick Balano, of Kansas City, Missouri, was sentenced to 27 months in prison and ordered to pay $493,443 in restitution. Balano pleaded guilty on Aug. 3, 2015, to participating in a scheme to defraud the government by failing to pay over to the IRS more than $260,000 that he collected from his employees in employment taxes. Balano also failed to pay an additional $232,672 to the IRS as well which represented the employer portion of the taxes. The total loss to the government was more than $493,000. According to court documents, Balano was the owner of Global Employment Group, Inc., doing business as Staffing Connections (Global Employment). Balano withheld employment taxes from his employees, but instead of paying over those taxes to the government, he kept most of it for his own personal use. Balano used the money to finance his own personal expenses and expenses for family members, including gambling, mortgage payments and car payments.
Ohio Business Owner Sentenced for Failing to Pay Employment Taxes
On Jan. 25, 2016, in Columbus, Ohio, Paul R. Taylor, Jr. was sentenced to 12 months and one day in prison, three years of supervised release and ordered to pay $1,576,750 in restitution to the IRS. Taylor previously pleaded guilty to willful failure to pay over employment taxes on June 23, 2015. According to court documents, Taylor is the owner and operator of inter-related business entities in the construction development management industry. One of Taylor’s entities, Kingston, LLC (“Kingston’), engaged in the practice of withholding employment taxes from employees and then failing to remit payment to the IRS. Taylor was also a responsible party for another entity that engaged in a similar practice and, as of 2006, this other entity had accrued substantial employment tax liabilities. Beginning in 2006, Taylor set up Kingston as a “back office support” for his numerous other entities. The amounts that Taylor withheld from his employees were never remitted to the IRS. For 2002 through 2011, unpaid employment taxes totaled $1,576,750.
Rhode Island Businessman Sentenced for Unapproved Cancer Remedies and Tax Evasion
On Jan. 19, 2016, in Providence, Rhode Island, James Feijo, owner and operator of Daniel Chapter One, a Portsmouth based company, was sentenced to six months in prison and six months home confinement, three years of supervised release and ordered to pay restitution of $218,408 to the IRS. Feijo pleaded guilty on Sept. 11, 2015, to introduction of a new unapproved drug and tax evasion. According to court documents, Feijo engaged in the marketing, sale and distribution of unapproved cancer treatment health products and supplements which were not generally recognized as safe and effective by the FDA or by qualified experts. The products were marketed and sold through various methods such as promotional publications, websites and Feijo’s radio program. From 2006 through 2011, Feijo failed to issue IRS Wage and Tax Statements for employees’ wages and taxes withheld. Daniel Chapter One employees were paid by checks written out to cash, and for at least sixteen quarters, Feijo failed to collect, account for and pay over employment taxes due the IRS totaling $218,408.
President of Mexican Market Sentenced for Employment Tax Fraud
On Jan. 7, 2016, in Cincinnati, Ohio, Liborio Alcauter was sentenced to 66 months in prison, three years of supervised release and ordered to pay restitution of $1,127,233 to the IRS. Alcauter previously pleaded guilty to two counts of willful failure to collect or pay over tax and one count of employment of unauthorized aliens. According to court documents, Alcauter was the president of La Michoacana Mexican Market and was responsible for hiring and paying employees. From 2009 until about September 2014, Alcauter decided which employee were paid through payroll, to include the withholding and paying over of federal employment taxes, and which employees were paid in cash, with no federal employment taxes collected or paid over to the IRS. Alcauter generally paid employees in cash that did not have legal status in the United States. Alcauter failed to collect, truthfully account for, and pay over federal employment taxes totaling $1,127,233, which was due to the IRS for the employees paid in cash.
Operator of Third Party Payroll Company Sentenced For Embezzling from Client Companies
On Dec. 15, 2015, in Charlotte, North Carolina, James William Staz was sentenced to 135 months in prison, two years of supervised release and ordered to pay over $17 million in restitution. Staz pleaded guilty in March 2015, to wire fraud, transactional money laundering and tax evasion. According to court documents, Staz operated a third-party payroll company, “Employee Services.Net, Inc.” (ESN) that provided services to client companies. Staz was ESN’s vice president and later the company’s president. ESN had access to the clients companies’ bank accounts to cover expenses associated with the services it provided. From 2008 to March 2014, Staz defrauded at least 113 ESN clients of almost $17 million dollars intended for payroll and employment tax payments and used it to support his personal lifestyle. Staz stole at least $3.7 million in client funds and used the money to pay for alcohol, strip club entertainment, jewelry, a Mercedes Benz and a luxury home. To conceal his embezzlement, Staz made false entries into ESN’s accounting system to make it appear as though the funds were used for legitimate client expenses.
Former CEO Sentenced for Failure to Pay Over Employment Taxes
On Nov. 13, 2015, in Baltimore, Maryland, William Kristen Hathaway, of Ellicott City, was sentenced to 24 months in prison, six months of home detention, three years of supervised release and ordered to pay restitution of $3,411,375. According to Hathaway’s plea agreement, he was the CEO for Baltimore Behavioral Health (BBH), a tax-exempt organization that provided treatment for drug addictions and mental disorders. The Board of Directors for BBH was primarily comprised of Hathaway’s relatives who were paid a salary. Hathaway withheld a total of $2,495,779 in payroll taxes from March 2009 through December 2011, but instead of forwarding those funds to the IRS, he spent the money on company expenses. Hathaway also served as a fiduciary for the employee pension plan. From September 2009 through April 2010, Hathaway diverted $53,530 in employee contributions to pay company expenses, instead of transferring those funds to the custodian of assets.
Business Owner Sentenced for Failing to Pay More Than $860,000 in Withheld Federal Payroll Taxes
On Oct. 28, 2015, in Phoenix, Arizona, David Leon Barker, Jr., of Cave Creek, was sentenced to 15 months in prison, two years supervised release and ordered to fully cooperate with the IRS in the determination and collection of taxes, penalties, and interest due and owing. Barker previously pleaded guilty to willful failure to pay over taxes. According to court documents, Barker was the corporate president and operator of a medical supply company that did business under several names between 1995 and 2012, most recently as Barker Healthcare, Inc. Between 2000 and 2012, Barker withheld and failed to pay over more than $862,000. Additionally, Barker failed to pay his employer’s share of payroll taxes for a substantial period of time, making his total tax liability $1,415,570.
Second Former Arrow Trucking Executive Sentenced In Multi-Million Dollar Fraud Scheme
On Oct. 16, 2015, in Tulsa, Oklahoma, Jonathan Leland Moore, of Waxahachi, Texas, was sentenced to 35 months in prison, three years of supervised release and ordered to pay $21,026,682 in restitution to the IRS and the Transportation Alliance Bank (TAB). On Dec. 4, 2014, Moore, the former chief financial officer (CFO) of Arrow Trucking Company, pleaded guilty to a dual-object conspiracy to defraud the United States and to commit bank fraud. According to court documents, Moore, along with others, including James Douglas Pielsticker, the former CEO and president of Arrow Trucking Company, conspired to defraud the United States. The conspirators withheld but failed to report or pay over employees’ federal withholding taxes, paid for Pielsticker’s personal expenses with company money and submitted fraudulent invoices to TAB to induce the bank to pay funds that were not warranted. In total, the conspiracy caused a loss to the United States totaling more than $9.562 million.
Former Arrow Trucking Executive Sentenced In Multi-Million Dollar Fraud Scheme
On Oct. 9, 2015, in Tulsa, Oklahoma, James Douglas Pielsticker, of Dallas, was sentenced to 90 months in prison, three years of supervised release and ordered to pay $21,026,682 in restitution to the IRS and the Transportation Alliance Bank (TAB). Pielsticker, a former chief executive officer and president of Arrow Trucking Company, previously pleaded guilty to a dual-object conspiracy to defraud the United States and bank fraud and willfully attempting to evade his individual income taxes. According to court documents, in 2009, Pielsticker and others withheld employees’ federal income tax withholdings, Medicare and social security taxes, but did not report or pay over these taxes to the IRS. Pielsticker took steps to evade his and his wife's 2009 income taxes by causing the Company to pay his personal expenses and underreporting wages and other compensation on his W-2 form.