Edward J. Tutunjian, 66, of Belmont, Massachusetts, recently pleaded guilty to payroll tax fraud, along with a slew of other charges relating to the operation of his taxicab business. The charges and plea came after a federal bust that involved IRS Criminal Investigation Division agents raiding Tutunjian’s taxicab office with guns drawn, near Fenway Park. In addition to committing payroll fraud, federal authorities allege that he violated various labor laws and even helped employees commit low-income housing fraud.
Tutunjian’s company, EJT Management, also going by the name Boston Cab, is one of the largest taxicab operators in the Boston area. At one point, Tutunjian and EJT owned one in every five of the existing medallions in the city. According to a Department of Justice press release, because many cab fares are paid in cash, Tutunjian was easily able to pay EJT employees under the table, concealing both the true amount that EJT brought in on an annual basis and the amount that EJT was responsible paying in employment taxes. Because employment taxes are determined with respect to the amount of income an employee earns throughout the year, Tutunjian was able to lessen his purported tax liability by reducing the amount of compensation to his employees that was visible to the IRS.
According to prosecutors, EJT employed several undocumented immigrants, which only compounded the company’s legal troubles. Payments made to any employee, whether they are documented or not, are subject to payroll tax. Authorities estimate that between tax years 2009 and 2013, Tutunjian and EJT failed to pay nearly $750,000 in federal payroll tax.
In addition to the payroll tax charges, Tutunjian pleaded guilty to cheating his employees out of earned overtime hours. Authorities allege that EJT employees were required to clock in and out through the company’s timekeeping system in a manner that only recorded 40 hours of work per week. Thus, when paychecks and tax documents were prepared, it appeared as if employees only worked 40 hours per week. Although Tutunjian did compensate the employees for the overtime hours, he and EJT only paid them their hourly rate in cash and did not compensate them at the time-and-a-half rate that is required by federal and state law.
Tutunjian’s agreement with prosecutors involves him paying $1,391,012 to the IRS, which represents back-taxes not paid, penalties, and interest. He has also agreed to pay employees nearly $700,000 in overtime wages that went unpaid. Finally, Tutunjian will be required to pay just over $234,000 to the HUD, which stems from Tutunjian’s assistance in helping place EJT employees in low income housing that they did not qualify for. Prosecutors said that they would seek a federal prison sentence of no less than two years.
Payroll tax fraud is not taken lightly by the IRS or state taxing authorities. And as Mr. Tutunjian experienced in the story above, when one entity of the government opens an investigation against you, many others will follow suit. Federal law requires that employers pay employment tax on all compensation paid to employees. If you are a business owner who is being audited or investigated for payroll tax fraud or evasion, it is in your best interest to contact an experienced tax attorney as soon as possible.
Late last year, the IRS announced that they would begin implementing the Early Interaction Initiative in order to increase compliance with employment taxes. Under the initiative, the IRS will be looking out for potential payroll tax issues sooner rather than later. It is the hopes of the government that if an employer is notified of a discrepancy, that acts can be taken to rectify the situation. Employers that do not correct their actions will be investigated fully and may be charged with a felony if they willfully fail to come into compliance. The proliferation of the Early Interaction Initiative means that there will be more IRS revenue agents reviewing the actions of employers in order to catch potential mistakes.
Hiring a tax attorney to assist you in the event of an examination or investigation is preferable because of their extensive knowledge and experience in both tax rules and criminal defense. It’s true that not all examinations or investigations result in a criminal case being brought against a taxpayer, but obtaining the assistance of a tax lawyer will help ensure that your Constitutional rights are being respected throughout the process.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers from all walks of life. From individuals to small and medium-sized businesses, our zealous advocates are prepared to diligently work toward achieving a result that is in your best interest. Many taxpayers believe that they can go up against the IRS or a state taxing authority alone, but realize that they have bitten off more than they can chew after they have turned over potentially incriminating documents or made statements that can be used against them at trial. Don’t lose sleep over an IRS or state taxing authority investigation. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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