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Quatloos! > Tax Scams > Tax Protestors > EXHIBIT: Tax Protestor Dummies 2 > Cases Tax Protestor Cases Exhibit Employment Tax Requirements Employers are required by law to withhold employment taxes from their employees. Employment taxes include:
The federal income tax is a "pay as you go tax." You must pay the tax as you earn or receive income during the year. For most employees this takes the form of income taxes withheld from their pay. Self-employed persons are also required to make estimated tax payments during the year. The pay as you go system was designed to ensure that taxpayers meet their tax obligations timely. Social Security and Medicare taxes pay for benefits workers and their families receive under the Federal Insurance Contributions Act (FICA). Social security taxes pay for benefits under the old age, survivors, and disability insurance part of FICA. Medicare taxes pay for hospital benefits. Each employee contributes part of these taxes and the employer pays a matching amount. Self-employed taxpayers must also pay social security and Medicare taxes in the form of self-employment taxes. The Federal Unemployment Tax (FUTA) is another tax that pays unemployment compensation to workers who lose their jobs. Employers must report income and employment taxes withheld from their employees on an Employer's Quarterly Federal Tax Return (Form 941) and deposit these taxes in full to an authorized bank or institution pursuant to Federal Tax Deposit Requirements. Employers are also responsible for filing an Annual Federal Unemployment (FUTA) Tax Return and depositing those taxes. The programs funded by employment taxes provide essential benefits to many citizens. The importance of the programs will continue to grow as more citizens reach retirement age. Voluntary compliance remains the cornerstone of our tax system. Voluntary compliance means that for filing required tax returns and paying the correct amount of tax. Noncompliance with tax laws threatens the stability of our tax system. Sometimes noncompliance results from lack of knowledge on the part of the taxpayer. In these instances the Internal Revenue Service (IRS) will work with the taxpayer to bring them into compliance. It is in an employer's best interests to file employment tax returns, pay, and deposit taxes timely. Failure to do so can result in the imposition of a variety of civil sanctions. When taxpayers attempt to evade the employment taxes they may be subject to criminal sanctions. These are the most severe sanctions that can be imposed and often result in the taxpayer being sentenced to a term of imprisonment, fined and ordered to make restitution (in addition to other civil sanctions.) Unscrupulous individuals and promoters advocating willful noncompliance with the tax laws have used a variety of false or misleading arguments for not paying taxes (employment taxes.) The courts have repeatedly rejected these arguments as frivolous and routinely impose financial penalties when such meritless arguments are raised. Evading employment taxes can have serious consequences for employers and the employees. Employers may be subject to criminal and civil sanctions for willfully failing to pay employment taxes. Employees suffer because they may not qualify for social security, Medicare, or unemployment benefits when employers do not report or pay employment and unemployment taxes. Consequently, taxes withheld and paid by compliant employers are used to pay the refunds and social security benefits of employees whose employers did not pay the withheld taxes. To learn more about the requirements to pay taxes, read the IRS brochure "Why do I have to Pay Taxes" Publication 2105 (Rev. 10-1999) Catalog Number 23871N. Employment Tax Evasion Schemes Employment tax evasion schemes can take a variety of forms. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns. Pyramiding "Pyramiding" of employment taxes is a fraudulent practice where a business withholds taxes from its employees but intentionally fails to remit them to the IRS. Businesses involved in pyramiding frequently file for bankruptcy to discharge the liabilities accrued and then start a new business under a different name and begin a new scheme. Employment Leasing Employee leasing is another practice subject to abuse. Employee leasing is the practice of contracting with outside businesses to handle all administrative, personnel, and payroll concerns for employees. In some instances, employee leasing companies fail to pay over to the IRS any portion of the collected employment taxes. These taxes are often spent by the owners on a variety of business and personal expenses, and the company dissolves, leaving millions in employment taxes unpaid. Paying Employees in Cash Paying employees in whole or partially in cash is a common method of evading income and employment taxes resulting in lost tax revenue to the government and the loss or reduction of future social security or Medicare benefits for the employee. Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns Preparing false payroll tax returns understating the amount of wages on which taxes are owed, or failing to file employment tax returns are methods commonly used to evade employment taxes. IRS Criminal Investigation Employment Tax Evasion Data During Fiscal Years 1998, 1999, and 2000, nearly 86 percent of the persons convicted of evading employment taxes were sentenced to an average of 17 months in prison and ordered to make restitution to the government for the taxes evaded (plus interest and penalties.)
*Incarceration includes confinement to federal prison, halfway house, home detention, or some combination thereof. Significant Cases Brothers; Owners of Construction Company Convicted On February 16, 2001, Paul Buonopane and his brother Robert Buonopane, owners of B&B Acoustical Contractors, Inc., were convicted of 29 counts including conspiracy to defraud the IRS, conspiracy to commit mail fraud, aiding and assisting in the presentation of false payroll tax returns, and mail fraud directed at the company's workers' compensation insurance carriers and the Massachusetts Carpenters' Union. Evidence at trial indicated there was an under the table wages scheme in which approximately $460,000 in payroll was concealed from the company's payroll service, the IRS, the insurance carriers of workers' compensation, and the Union. The hidden $460,000 resulted in saving substantial amounts of employment taxes, insurance premiums, and contributions to the union fringe benefits funds which B&B owned. Sentencing is scheduled for May 14, 2001. Conviction of Former Hospital Administrator On November 29, 2000, a federal jury convicted C. David Morrison on 23 counts of financial related crimes including tax evasion, money laundering, and embezzlement. Morrison, administrator of Logan General Hospital, in Logan, West Virginia, failed to pay more than $4.5 million withheld from Logan General Hospital employees' paychecks for federal taxes in late 1997. In addition to the failing to pay $4.5 million in employment taxes, the jury found Morrison guilty of diverting tax and bond money toward the building of a mall project. Morrison used hospital money to pay for his share in the purchase of a $1.3 million private airplane. The payments used to fund Morrison's ownership and upkeep of the aircraft were structured in such as manner as to conceal the fact the hospital was making the payments on Morrison's behalf. Hospital funds were also used by Morrison and a business partner to keep afloat their joint business, American Development Corporation, and to renovate and pay off loans on a motel and several rental properties. On the opening day of the trial the judge rejected Morrison's proposed plea agreement when Morrison refused to say that he "intentionally" violated the law with his failure to hand over the tax money withheld from employees' paychecks. The financial crimes against Logan General Hospital and its employees forced the hospital into Chapter 11 bankruptcy. Snow Sentenced In August 2000, Albert Snow, the owner of two holistic food stores and a bookstore located in Medway, Massachusetts and North Smithfield, Rhode Island was sentenced to 3 years and 7 months in prison for evading and failing to pay over $500,000 in income taxes and payroll taxes, conspiring with others to defraud the United States, making false statements to banks, and paying unlawful gratuities to a public official. Albert Snow doing business as Holistic Health Products, operated two health food stores and a bookstore that sold holistic supplements, foods, vitamins, and books. During tax years 1993 through1998, he failed to file tax returns or pay any income tax. To conceal his income, Snow required all employees to accept their wages in cash, failed to withhold payroll taxes, commingled his personal and business expenses, and destroyed business records. In addition to the term of imprisonment Snow was fined $100,000 ordered to be placed on supervised release for a period of 5 years and ordered to assist the IRS in determining his outstanding tax liability. Split Payment Scheme On August 25, 2000, Terry L. Harrison of Westmoreland, Tennessee was sentenced to thirty consecutive weekends in jail, plus 120 days home confinement after pleading guilty to seven counts of filing false Employer's Quarterly Income Tax Returns, three counts of aiding and abetting the filing of those returns, and one count of filing a false Individual Income Tax Return. Harrison operates a mobile home transporting company, D&T Transport, that employs drivers who operate company trucks. From 1993-1995 Harrison split his drivers' pay between wages and contract labor to evade paying the employer's share of Social Security and Medicare taxes. Harrison also failed to withhold income taxes on the portion of the wages he misclassified as contract labor. In addition, Harrison filed a false 1993 Individual Income Tax Return failing to report over $54,000 of gross receipts and claimed a false deduction of more than $30,000 to a drug dealer who never provided services to his company. This scheme was designed to provide Harrison with extra cash, substantiation for illegal business deductions, and establish a "legitimate" source of income for the drug dealer. In fact, Harrison wrote the checks to the drug dealer, cashed them and kept the money. As part of his sentence, Harrison was ordered to pay $155, 667 in restitution to the IRS, was fined $20,000 and ordered to pay $1,368 per month toward the cost of his incarceration. Corporation President Sentenced In June 2000 Eckelberger plead guilty to a four count information charging him with violating Title 26, United States Code, Section 7202, willfully failing to truthfully account for and pay over "trust fund" taxes during 1995. Machine Company Vice President Sentenced Reynolds was charged in a 28 count criminal information with failing to account for and pay over $62,360.36 of withheld income taxes and employees' share of social security taxes for the twelve calendar quarters during the period 1994 to 1996. The indictment also charged she failed to pay the employer's share of social security taxes totaling approximately $ 21,876.81 for the same period and filed false income tax returns that understated her and husband's joint total income for years 1993-1996 by approximately $44,604. In the plea agreement Reynolds admitted responsibility for all criminal conduct alleged in the indictment that resulted in total unpaid employment and income taxes of $119,568. Restitution for all unpaid taxes has been made. Contractor Sentenced In October 2000, Jeffrey l. Huff was sentenced to 15 months in prison followed by three years of supervised release after he pled guilty to seven felony counts of failing to withhold and pay over employment taxes in violation of Title 26, United States Code, Section 7202. Huff also pled guilty to knowingly and unlawfully engaging in the practice of hiring illegal aliens. During July 1996 to March 1998, Huff was doing business as Huff Construction Inc. in Sebree, Kentucky (the principal place of business for Huff Construction is Mississippi.) Huff Construction was under contract to construct a large number of poultry houses at various locations in Western Kentucky. Huff employed a large number of workers from Mexico knowing they were illegally in the United States Criminal Investigation initiated an investigation after reviewing Currency Transaction Reports (CTRs) prepared by a bank in Sebree which revealed that large currency withdrawals were being made from the Huff Construction account every Friday. The investigation subsequently disclosed these withdrawals were made to pay workers in cash. Huff failed to withhold or pay over federal income taxes, social security, and Medicare taxes. During the seven quarters in question, Huff reported total wages of $449,455.97 on which the taxes due were $68,766.66. However, an analysis of business records seized during the execution of search warrant in June 1998 disclosed that Huff actually paid $2,582,110.20 in wages during this period on which total taxes of $395,062.36 were owed. Huff failed to withhold or pay over a total of $326,296.20 in taxes. It was disclosed during the investigation that Huff's CPA had advised him that his workers did not meet the criteria for independent contractors but Huff disregarded this advice because he did not want to pay employment taxes. Employee Leasing Company President In 1998, Richard Dvorak, former President of Persona Management Corporation, an employee leasing firm headquartered in Rhode Island, was sentenced to 41 months in prison for filing seven fraudulent quarterly payroll tax returns understating his firm's employment tax liability by more than $13 million. During 1992 and 1993, Persona Management Corporation "leased" almost 6000 employees to over 100 businesses. These businesses entered into arrangements with Persona Management Corp. to turn their employees over to Persona and then lease them back to realize savings on health and workman's insurance, pension plan costs, and payroll services. Instead of paying employment taxes on these employees, Dvorak used the money to support a lavish lifestyle purchasing a $1.2 million yacht, a $1 million mansion, and a horse farm in Connecticut. Dvorak spent $4 million renovating these properties in addition to purchasing several luxury vehicles and wiring over $1 million to Bermuda to invest in an offshore insurance company. |
Tax
Protestors, Pure Trusts, and Other Stupid De-Tax Schemes & Scams
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