You’re Gonna Pay

13399593 - dollars

Payroll taxes are the focus in today’s “Fraud of the Day.” Employees usually pay their share via paycheck deductions and then employers pay the Internal Revenue Service (IRS) an amount based upon the employee’s wages. Today’s fraudster collected his employees’ payroll taxes, but neglected to pay the IRS his companies’ share of the tax bill, which amounted to nearly $687,000.

This was not the payroll tax avoider’s first brush with the law. The man had previously admitted to lying about the sale of a bill-collection business. (He said he received $6.5 million for the business, when he was actually paid $11.3 million. That’s a pretty big difference.)

But wait, there’s more. The man and several co-conspirators made it look like his father was owed half of the company stock. In an interesting twist, the father filed a sham lawsuit against the son, who settled by paying his father $5 million. (But wait, his father never got the money.) His co-conspirators helped him create false businesses that conducted fake deals to make it look like the son lost millions of dollars. (The money that was “lost” found its way to Canadian banks and offshore accounts in the Caribbean and the Channel Islands off England’s coast.)

Like most fraud cases, this one did not stay under cover for long. While going through a divorce, his wife’s lawyer suspected that he was hiding assets. (He was right on target.) Consequently, he served 30 months in federal prison and was ordered to pay $1.26 million in restitution to the IRS.

But he didn’t comply with the judge’s order. He violated his supervised release twice by not paying restitution to the IRS. (He received an additional six months in prison each time he didn’t pay.) It’s also important to note that he didn’t share the fact that he had spent $4,000 at a luxury resort and paid his country club dues to his probation officer. (He could buy luxurious experiences, but he couldn’t pay restitution.)

 So, now on to the fraudster’s second brush with the law. While the business owner did withhold payroll taxes from his employees’ wages for nearly three years at his five debt-collection and consultant companies, he deliberately did not pay his share of the payroll taxes to the IRS. (Now wouldn’t you think he learned a lesson the first time around?)

The 66-year-old agreed to cooperate with government prosecutors. His plea deal calls for him to serve one year and one day in federal prison. (Ironically, the extra one day would make the criminal eligible for time off for good behavior. I’m not thinking that this guy is capable of good behavior.) He must also pay nearly $1.14 million in restitution to the IRS, which includes the $687,000 he collected from his employees, plus the nearly $451,000 in employer contributions he failed to make. (I’ve got a feeling that this guy is going to pay this time. Let’s hope everyone is determined to prevent this fraudster from deceiving them again.)

Source: Today’s “Fraud of the Day” is based on an article entitled, “Westerville man pleads guilty in another case of shorting IRS” published by The Columbus Dispatch on February 16, 2017.

Richard D. Schultz was in a familiar spot on Thursday: At a defense table in a federal courtroom pleading guilty to a tax crime.

Schultz, 66, admitted that he failed to turn over to the government nearly $687,000 in payroll taxes collected from employees between April 2010 and January 2013 at his several debt-collection and consultant companies.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.