Payroll Tax Fraud War Stories

Readers of my California tax attorney blog love war stories of those who have participated in and been convicted of tax fraud and tax evasion, both criminal tax offenses. The payroll tax problem that took place in California was particularly interesting to me. These tax controversies highlight the severity of the punishment when convicted of a crime. The Internal Revenue Service posts stories to site examples of employment tax fraud investigations that are excerpts from public record in the judicial district in which the cases were prosecuted. Here are a few of those stories:

Nursing Home Owner Convicted of Failing to Pay Over $9.6 Million in Payroll Taxes

In San Francisco, CA, Jack Easterday was convicted by a federal jury on 107 counts of willful failure to pay employment taxes owed to the government. Easterday, who is the owner of numerous nursing home facilities, was convicted of failing to pay more than $9.6 million in taxes. However, evidence at trial, which will be considered for sentencing purposes, showed that Easterday failed to pay more than $16 million in payroll taxes from 1998 to 2005. Evidence at trial also showed the IRS had attempted to collect the taxes from Easterday for years before the charges were filed. He thwarted the efforts of the IRS to collect the taxes by, among other things, paying himself and his wife exorbitant salaries and directors fees, while he was pleading poverty to the IRS collection agents.

Defendant Sentenced for the Embezzlement of Over $1.5 Million in Payroll Taxes

In Tampa, FL, Robert M. Crawford was sentenced to 42 months in prison followed by three years of supervised release and ordered to pay a $10,000 fine. Crawford pleaded guilty on July 26, 2006, to one count of income tax evasion. According to the plea agreement and testimony in court, Crawford was an employee of Pay Plus Payroll Administrators, Inc. Pay Plus collected funds from its corporate clients and agreed to file payroll tax returns (Forms 941) with the Internal Revenue Service and pay to the IRS its clients’ payroll taxes. During the period between 1999 and 2003, Crawford engineered a scheme through which Pay Plus issued corporate checks to Crawford and other businesses and individuals associated with him, collected those funds, but did not turn them over to the IRS. As a result of Crawford’s actions, the total of payroll funds embezzled and diverted between 1999 and 2003 was approximately $1,582,756.

Payroll Service Sentenced for Employment Tax Fraud

In St. Louis, MO, Angela C. Smiley, owner of American Payroll Service (APS), was sentenced to 36 months in prison for embezzling more than $600,000 in employment taxes. Smiley drafted more than $600,000 directly from APS clients’ bank accounts to pay their federal tax liabilities, from January 2000 through September 2004, but failed to forward the funds to the IRS. Instead, she used the money: to pay employee payroll; her own salary; to pay her husband who was not an APS employee; to pay general operating expenses of APS; and to pay her own personal expenses. Additionally, as Power of Attorney for APS business clients, Smiley was contacted directly by the IRS and questioned about the failure of APS business clients to remit money to pay their federal tax liabilities. She lied to hide her scheme and then failed to advise the APS business clients of the IRS contacts.

Owner and Operator of Creation Science Evangelism Enterprises/Ministry Sentenced to 10 Years in Prison

In Pensacola, FL, Kent E. Hovind, owner and operator of Creation Science Evangelism Enterprises/Ministry (CSE), was sentenced to 10 years in prison to be followed by three years of supervised release. In addition to jail time, Hovind was ordered to pay $604,874 in restitution and $7,078 in prosecution costs. Hovind was also ordered to forfeit $430,000 in seized U.S. currency. In November 2006, Hovind was convicted on all counts of a 58-count indictment charging him with structuring, obstruction, and failure to pay employment taxes. As part of CSE, Hovind operated Dinosaur Adventure Land, a theme park in Pensacola. According to court documents, Hovind failed to obtain W-4 information from CSE employees and failed to withhold taxes from employee wages. Hovind also structured cash withdrawals from AmSouth Bank in amounts less than $10,000 in an effort to avoid the bank filing currency transaction reports.

Leaders of Nationwide Illegal Alien Employee-Leasing Conspiracy Sentenced

In Miami, FL, Jozef Bronislaw Bogacki, a native of Poland and naturalized U.S. citizen, and Jaroslaw “Jerry” Sawczuk, a Polish and Canadian citizen, were sentenced for their roles in a nationwide employee-leasing conspiracy that exploited hundreds of illegal aliens throughout the United States. Bogacki was sentenced to 57 months in prison and ordered to pay a money judgment of $950,000 and to forfeit six pieces of real property valued at approximately $500,000. Sawczuk was sentenced to 51 months in prison and imposed a money judgment of $950,000. Bogacki and Sawczuk were the leaders of a six-person nationwide employee-leasing conspiracy which was responsible for laundering over $20 million and defrauding the U.S. Treasury of at least $5.7 million. A third defendant in the conspiracy, Pavel Preus, a Slovak citizen, was sentenced on September 13, 2006, to 37 months in prison and three years of supervised release. Bogacki, Sawczuk and Preus had all pleaded guilty to charges of conspiracy to transport, house and otherwise encourage illegal aliens to remain in the United States, and to commit visa, wire, mail and tax fraud, and money laundering. According to an indictment, the defendants formed numerous sham corporations in Florida and, through these corporations, contacted legitimate businesses throughout the United States and offered the services of “work-authorized” leased workers. The defendants promised these businesses that the they would contribute to, collect, and pay over Social Security and Medicare contributions, and federal and state income taxes. Instead, the defendants supplied unauthorized immigrant workers and never made the required payroll tax payments, keeping over $5.7 million in unpaid taxes and contributions for their own use.

Indiana Businessman Sentenced to 57 Months in Prison for Failure to Pay Employees’ Withholding Taxes to the IRS

In Indianapolis, IN, Sergio Buezo was sentenced to 57 months in prison and ordered to pay $871,042 restitution to the Internal Revenue Service after pleading guilty to mail fraud and failure to pay employee withholding taxes. Buezo’s company, Bayou Abatement, was involved in hurricane disaster reconstruction work in Florida. Bayou Abatement hired employees to travel to Florida, paid the employees hourly wages and purported to withhold employees’ income and social security taxes. Buezo kept the money, and spent about $1.4 million that should have been paid to state and federal agencies on personal expenses including mortgage payments, automobiles, a boat, a swimming pool, home improvements and jewelry. All of the assets including Buezo’s personal residence were seized or are subject to a restraining order. His assets will be sold to pay the taxes Buezo failed to pay.

West Virginia Septic Tank Cleaner Sentenced

In Charleston, WV, Duke William Linzy, owner and operator of a septic hauling business was sentenced to 30 months in prison followed by one year supervised release, fined $25,000 and ordered to pay a special assessment of $175. Linzy pleaded guilty in September 2006 to violating the Clean Water Act and three counts of failing to file his income tax. According to court documents, Linzy directed his employees to dump sewage into a floor drain which drains into a sanitary sewer line leading to the Charleston sewage treatment plant. The contents were not treated prior to being dumped into the floor drain and Linzy’s facility and its floor drain were not authorized discharge points under the Charleston local pretreatment regulatory program. Additionally, Linzy failed to file Form 941, Employer’s Quarterly Federal Tax Return for the third quarter of 2002, Form 940, Employer’s Annual Federal Unemployment Tax Return for 2002 and Form 1040, Individual Income Tax Return for the tax year 2002.

Minnesota Businessman gets 72 Months Prison Term for Employment Tax, Embezzlement and Perjury

In Minneapolis, MN, Chad Wetzel, the owner and operator of a now defunct heating and ventilation company, was sentenced to 72 months in prison and ordered to pay restitution of $208,427. Wetzel pleaded guilty to employment tax fraud, embezzlement of funds from a union employee benefit plan, and perjury during a bankruptcy proceeding. As an employer, Wetzel withheld and collected payroll taxes and union ERISA plan contributions from employee payrolls, but failed to pay these funds over to either the IRS or the unions. Wetzel also withheld employee premiums for health insurance, but did not pay these over to the health care benefit plans. Wetzel’s company failed to pay over approximately $412,251 in payroll taxes to the IRS, approximately $134,835 in ERISA payments to unions and more than $7,000 in health care premiums. In October 2003, Wetzel caused the company to file Chapter 11 bankruptcy. During the bankruptcy proceedings, Wetzel concealed and did not disclose the existence of accounts, assets, and transfers of property and assets to the Bankruptcy Court. He also lied under oath at a Creditors’ hearing when he falsely declared that he had disclosed all financial accounts and assets of the company and all transfers of ownership and property within the year prior to the company filing for bankruptcy protection.

Local Business Owner Sentenced in Employment Tax Scheme

In Cincinnati, OH, David Weber was sentenced to serve one year in prison, one year of supervised release, and ordered to pay $318,385 in restitution to the Internal Revenue Service for willfully failing to file Form 941, Employer’s Quarterly Federal Tax Returns, with the IRS relative to federal employment taxes for the second and fourth quarters of the 2003 tax year. According to court documents and testimony, Weber owns and operates Best Design, Inc., a silk screening of textiles business in Cincinnati, Ohio, which employs between 18 and 22 employees. From January 2001 through September 2005, Weber paid wages totaling over $1.6 million to employees of Best Design, Inc. As an employer, Weber failed to withhold the federal income taxes on wages paid to his employees, failed to withhold the employee’s share of the employment taxes, and failed to pay over any employment taxes. As a result of Weber’s failure to file his quarterly employment tax returns and not paying his employment taxes for the periods January 2001 through September 2005, the tax loss to the IRS was $318,385.

Podiatrist Sentenced on Tax Charges

In Ft. Smith, AR, Clifford B. Marston, a podiatrist who owns Sunshine Foot Clinic, Inc., was sentenced to 26 months in prison, three years of supervised release, and ordered to pay $296,477 in restitution to the IRS. In addition, Marston was ordered to pay a $5,000 fine and a $2,500 assessment. Marston was convicted on May 22, 2006, on charges of income tax evasion, filing false income tax returns, and assisting in the preparation and presentation to the IRS of false individual income tax returns. Evidence at trial showed that Marston illegally stopped withholding employment taxes from his employees’ salaries during the fourth quarter of 1999. Additionally Marston began filing false Employers Annual Federal Unemployment Tax returns and false Employers Quarterly Federal Tax Returns in the last quarter of 1999 and continued to do so through the first quarter of 2001 claiming no federal wages were paid to employees, even though he continued to pay his employees’ wages. After the first quarter of 2001, Marston stopped filing all federal tax forms including employment tax returns and personal income tax returns. Testimony during the trial revealed that Marston also willfully assisted in and procured, counseled and advised others in the preparation of false income tax returns to be filed with the IRS. Evidence was presented that proved Marston provided two of his employees with false Forms W-2 reporting no wages earned for federal purposes, whereas Marston knew that he had paid these employees wages for the years involved.

Landscaper Sentenced on Employment Tax Fraud Charges

In West Palm Beach, FL, Warren Kowalsky, of Delray Beach, was sentenced to 24 months and one day in prison to be followed by three years of supervised release and ordered to pay $140,852 in restitution to the Internal Revenue Service (IRS). As conditions of his supervised release, Kowalsky was also ordered to cooperate fully with the IRS. Prior to the sentencing, Kowalsky paid his restitution in full to the IRS. Kowalsky pleaded guilty in December 2006 to one count of payroll tax evasion. As charged in the Information, Kowalsky was the sole shareholder and owner of Custom Property Services, Inc. (Custom), a corporation that was engaged in the landscaping and lawn maintenance business and specialized in large commercial and municipal contracts. From January 2000 through December 2002, Custom employed at least 20 employees per quarter. As the owner of Custom, Kowalsky was required to collect and truthfully account for and pay over to the IRS all income taxes withheld as well as all FICA taxes owed on each employee’s income. On or about April 30, 2002, Kowalsky failed to collect and truthfully account for and pay over FICA taxes owed on the wages of Custom employees due and owing to the United States of America for the quarter ending March 30, 2002.

Mitchell A. Port, at (310) 559-5259, provides tax help directly to clients who have civil tax problems and assists those with criminal tax problems by finding a qualified criminal defense attorney.