Business owners who pay workers in cash to avoid employment taxes expose themselves to criminal liability and significant financial penalties. According to a Department of Justice press release, Alexis Garcia, the owner of Tape Drywall Services Inc. in South Florida, pleaded guilty to conspiring to defraud the United States by operating an off‑the‑books payroll scheme. If you have underreported wages or paid employees in cash without withholding taxes, you should speak to a tax attorney immediately to evaluate your potential exposure.
Garcia Used Check‑Cashing Businesses to Pay Workers in Cash and Evade Taxes
According to court filings, Garcia’s drywall company provided labor to contractors in Miami‑Dade County and beyond. Rather than paying employees by check and remitting employment taxes, Garcia cashed more than 3,600 business checks, totaling over $28 million, at local check‑cashing stores. He then used the cash to pay his workers off the books. By avoiding payroll, he failed to withhold and pay employment taxes to the IRS and also underreported his company’s payroll to insurance carriers, thereby reducing workers’ compensation premiums. He also aided and abetted his worker’s income tax evasion by paying them in cash and not issuing W-2’s or 1099’s.
Between 2017 and 2019, Garcia’s scheme cost the IRS more than $4.2 million in unpaid taxes. To conceal his actions, he falsified invoices and created a shadow payroll that understated the number of workers and total wages. His plea agreement acknowledges that he also falsely represented his company’s payroll to workers’ compensation insurers, which allowed him to secure lower premium rates while maintaining the same level of risk.
Employment Tax Fraud Can Lead to Incarceration and Restitution
Garcia faces up to five years in prison on the conspiracy charge. He will also likely be ordered to pay restitution to the IRS for the full amount of the tax loss and may face additional penalties for making false statements to insurance carriers. Lastly, he may be ordered to serve a period of supervised release, commencing upon the end of his physical incarceration. The IRS and Department of Justice treat employment tax fraud as a serious offense because it deprives the Social Security and Medicare trust funds of needed revenue and undermines honest businesses that comply with the law. Payroll tax withholding of income taxes also accounts for the majority of income taxes collected by the federal government and most states.
Business owners sometimes rationalize paying employees in cash as a temporary solution to cash‑flow issues or high payroll costs. However, intentionally failing to file employment tax returns and remit taxes exposes owners to charges of tax evasion and conspiracy. The government routinely prosecutes employers who use check‑cashing services to conceal payroll, and such schemes are often uncovered when workers file unemployment claims or when insurers audit payroll records. The IRS and the state governments are also know to raid check cashing outfits looking for potential criminal and civil enforcement targets.
Coming Into Compliance with Employment Tax Obligations
If your business has fallen behind on employment taxes or has paid workers off the books, it is critical to address the issue before the IRS begins an eggshell audit, reverse eggshell audit, or criminal tax investigation. An experienced tax evasion attorney can help you reconstruct payroll records, file delinquent returns, and negotiate installment agreements to pay outstanding taxes. In some cases, voluntary disclosure and cooperation can prevent criminal tax charges or result in reduced civil penalties.
We Are Here for You
The Tax Law Offices of David W. Klasing have significant experience representing business owners accused of payroll and employment tax violations. We can assist you in developing internal controls, implementing accurate payroll systems, and working with the IRS to resolve outstanding tax liabilities.
With offices throughout California and the ability to meet remotely, we offer convenient and confidential consultations. Contact us today to schedule a meeting and learn how we can help you achieve compliance and avoid criminal tax prosecution.
