Employment Tax Fraud

December 8, 2017

A Tennessee temporary staffing company officer was convicted by a federal jury in Memphis of conspiring to defraud the United States, failing to pay over employment taxes, filing fraudulent employment tax returns, theft of government funds and aggravated identity theft. According to the evidence presented at trial, from 2005 through 2015, Mark Stinson and his wife, Jayton Stinson, operated a temporary staffing company in Memphis that provided services to businesses in Tennessee and elsewhere. The staffing company’s standard contract with its customers provided that the staffing company was responsible for withholding employment tax from its employees’ wages and paying over the amounts withheld to the Internal Revenue Service (IRS). The Stinsons failed to pay over $2.8 million in withholdings and other employment taxes due to IRS, failed to timely file employment tax returns and filed false employment tax returns. In an effort to avoid making payments to the IRS the Stinsons changed the name and structure of the company multiple times after accumulating employment tax liabilities, operating as Jayton Stinson Connex Staffing & Janitorial Service, Connexx Staffing Services LLC, Connexx Staffing Services Inc., and Complete Employment Agency. DOJ

November 9, 2017

A business owner was charged by a federal grand jury in Boston, Massachusetts, with attempting to obstruct the internal revenue laws, aiding and assisting in the filing of fraudulent corporate, personal, and employment tax returns, tax evasion, and structuring financial transactions, announced the Justice Department’s Tax Division. According to the indictment, Nicholas Boulas, of North Reading, owned and operated Nick’s Painting Service Inc. (NPS), which provided painting services to residential and commercial customers in the Boston area. From 2009 through 2014, Boulas allegedly concealed approximately $4 million in business receipts by cashing approximately $2.7 million in checks and directing a substantial number of customers to write checks to him personally, which he cashed and deposited using multiple personal bank accounts. According to the indictment, he structured cash transactions to involve less than $10,000 in currency in order to evade the banks’ reporting requirements – banks are required to file reports with the U.S. Treasury for transactions involving more than $10,000 of currency, conducted by or on behalf of the same person on the same day. DOJ

July 19, 2017

Sreedhar Potarazu, an ophthalmic surgeon and founder of VitalSpring Technologies Inc., was sentenced to 10 years in prison for defrauding his former company’s shareholders and for failing to pay employment taxes.  He was also ordered to pay roughly $50 million in restitution to the shareholders and $7.7 million to the IRS, and forfeiture of several homes, vehicles, and bank accounts.  From at least 2008, Potarazu provided materially false and misleading information to VitalSpring’s shareholders to induce more than $49 million in capital investments in the company.  DOJ

July 6, 2017

A Houston, Texas business owner was sentenced to 36 months in prison for failing to pay over employment taxes, announced the Justice Department’s Tax Division. According to documents filed with the court, Richard Floyd Tatum Jr., 57, owned Associated Marine & Industrial Staffing Inc. (AMI), an industrial staffing company that provided temporary labor to businesses in Texas and other states. Tatum employed approximately 1,000 people to include internal employees, who worked for AMI, and external employees, who AMI assigned to work on-site at client locations. Tatum was responsible for collecting, accounting for and paying over to the Internal Revenue Service (IRS) the payroll taxes withheld from AMI’s employees’ wages. Tatum exercised significant control over AMI’s finances, entered into contracts on behalf of AMI, signed checks, to include payroll, and decided which creditors to pay. Tatum also signed and filed AMI’s employment tax returns. DOJ

June 8, 2017

The former owner of a Las Vegas, Nevada strip club pleaded guilty in U.S. District Court in the District of Nevada to evading employment taxes, announced the Justice Department’s Tax Division. According to documents filed with the court, Frederick John Rizzolo, 58, of Las Vegas, the former owner of The Crazy Horse Too, evaded paying more than $1.7 million in employment taxes that he owed for 2000 through 2002. Rizzolo paid The Crazy Horse Too’s floormen, bouncers, bartenders and shift managers in cash, but failed to provide accurate records of these payments to the Club’s bookkeepers. As a result, Rizzolo caused false employment tax returns to be filed with the Internal Revenue Service (IRS), which underreported wages paid and thus the taxes due. In 2006, Rizzolo admitted this conduct and pleaded guilty to conspiring to defraud the United States. Following his plea, however, Rizzolo took affirmative steps to conceal his assets and income to thwart the IRS from collecting the delinquent taxes that he owed. For example, Rizzolo directed $900,000 that he received from the sale of the Crazy Horse Too to an offshore bank account in the Cook Islands. He also withdrew $50,000 from a bank account, writing a check to a third party, who in turn provided the money back to Rizzolo, thereby avoiding an IRS levy and seizure of the funds. Additionally, Rizzolo lied to an IRS collections attorney, falsely stating that he had no income or assets and no ability to pay the taxes owed. DOJ

June 5, 2017

An Ohio resident was convicted by a federal jury sitting in Cincinnati, Ohio of conspiracy to commit wire fraud, wire fraud, bank fraud, evasion of employment taxes and failure to pay over employment taxes, announced the Justice Department’s Tax Division. According to the evidence presented at trial, Fesum Ogbazion, 44, was the owner and CEO of ITS Financial LLC, which was the national franchisor of Instant Tax Service (ITS), a tax preparation business. Ogbazion founded ITS in 2004 and at one time it had more than 1,100 franchise locations throughout the United States. From approximately January 2009 through 2012, Ogbazion conspired with others at ITS to generate loan and tax return preparation fees for ITS and its franchises by luring taxpayers into ITS franchises through a fraudulent nationwide advertising campaign. The ITS ads offered tax refund anticipation loans through an independent third party lender, despite the fact that ITS did not have such a lender to fund the promised loans. The evidence introduced at trial established that Ogbazion used the false advertising campaigns to entice customers into coming to ITS locations for a loan and then used their loan applications to prepare and file income tax returns – often without customers’ authorization. ITS charged its customers between $500 to $800 in tax preparation fees. Between 2006 and 2011, ITS collected more than $70 million in fees. DOJ

May 16, 2017

A federal court in McAllen, Texas ordered Idalia Padron and Nino’s Home Care Inc. to timely file the business’s federal employment and unemployment tax returns as they become due and pay in full the reported amounts due. The court also entered a money judgment against Nino’s Home Care for more than $2.7 million, which represents its past unpaid employment taxes. The complaint filed by the government against Padron and Nino’s Home Care alleged that Padron of Edinburg, Texas, operates Nino’s Home Care, a home health care service provider located at 121 W. Samano Street in Edinburg, and that Nino’s Home Care failed to pay its employment taxes for 20 tax quarters between 2005 and 2016. The complaint also alleged that Padron paid herself more than $100,000 in salary in 2015, a year in which Nino’s Home Care failed to pay over to the Internal Revenue Service (IRS) more than $850,000 in employment taxes. DOJ

April 21, 2017

Illinois announced charges against the operator of a south suburban home health care business for defrauding the state out of over $200,000 in employee tax withholdings. Reginaldo Sulit, 48, of Chicago, was charged with theft of government funds and income tax fraud in his position as an officer and shareholder of Alliance Home Healthcare in Worth, Ill. Sulit was arraigned this week in Cook County Criminal Court. Madigan alleged that between June 2013 and September 2016, Sulit withheld money designated for employee income taxes from Alliance Home Healthcare employees’ paychecks without remitting the taxes to the Illinois Department of Revenue (IDOR). Madigan alleged Sulit stole over $203,900 through his scheme. IL

March 23, 2017

A federal grand jury sitting in the District of Massachusetts returned an indictment charging two Massachusetts residents who operated a temporary employment agency with conspiring to defraud the government, failing to pay over employment taxes and obstructing the internal revenue laws, announced the Justice Department’s Tax Division. According to the indictment, Huong Le and Tien Chau ran an employment agency that provided temporary labor to businesses in Massachusetts and New Hampshire. The agency operated under at least four different names: Central Boston Staffing Services, Metro Boston Staffing Services, General Staffing Inc. and Kim’s Staffing Inc. Le and Chau allegedly used family members and other individuals as nominees to conceal their ownership of the business. The indictment alleges that from 2006 through 2011, Le and Chau conspired to conceal their agency’s total number of employees from the Internal Revenue Service (IRS) to lower their employment tax liabilities. Le and Chau allegedly attempted to hide the size of their workforce from the IRS by paying most of their employees cash under the table and causing the filing of false employment tax returns that both underreported the number of their employees and did not report wages paid in cash. Le and Chau allegedly cashed over $11 million in client checks at a check cashing facility in Worcester and used their staffing agency’s site supervisors, office manager and drivers to pay their employees in cash. DOJ

March 22, 2017

A Houston, Texas business owner pleaded guilty to one count of failing to pay over employment taxes, announced the Justice Department’s Tax Division. According to documents filed with the court, Richard Floyd Tatum Jr., 57, owned Associated Marine & Industrial Staffing Inc. (AMI), an industrial staffing company that provided temporary labor to businesses in Texas and other states. Tatum employed approximately 1,000 people to include internal employees, who worked for AMI, and external employees, who AMI assigned to work on-site at client locations. Tatum was responsible for collecting, accounting for and paying over to the Internal Revenue Service (IRS) the payroll taxes withheld from AMI’s employees’ wages. Tatum exercised significant control over AMI’s finances to include entering into contracts, signing checks, to include payroll, and deciding which creditors to pay. Tatum also signed and filed AMI’s employment tax returns. From March 2008 through December 2009, Tatum filed false and untimely employment tax returns for AMI that did not report AMI’s external employees. In May 2013, Tatum filed untimely returns for the quarters ending in March 2010 through December 2012, reporting AMI’s external employees but failing to make any payments. Tatum withheld approximately $12 million in payroll taxes from March 2008 through December 2012, which he did not pay over to the IRS. Tatum also failed to pay $6 million of AMI’s contributing share of social security and Medicare taxes during the same quarters. Instead, he used the money for his personal benefit, including making payments on his ranch and traveling to Las Vegas, Hawaii and France. Tatum admitted that he caused a tax loss of more than $18 million. DOJ