For more than 40 years, Edward J. Tutunjian operated Boston Cab through his company, EJT Management, Inc., for more than four decades. Since 1972, Tutunjian grew his company. By 2014, Tutunjian and his business interests had captured a significant portion of the Boston Taxi market. According to prosecutors, by 2014, Tutunjian and his business interests owned and controlled 372 taxi medallions. According to the Boston Globe, a single medallion could fetch a price of up to $700,000 as recently as 2014. Although the value of medallions may have eroded in recent years due to competition with Uber and other ride-sharing companies, it is important to note that Tutunfian had achieved remarkable financial success and the respect and community standing that comes with such accomplishments.
Unfortunately, some individuals who achieve extraordinary levels of success come to believe that they can bend or break the law to boost the profitability of their business. In some instances, sheer greed can motivate this behavior. In other scenarios, an economic downturn or other financial difficulties may motivate the business owner to engage in fraud or other improper actions to reduce tax liability.
This payroll tax scheme was multi-faceted and employed a number of techniques and tactics to conceal the true scope of the company payroll and extent of income paid to employees. Generally, the company owned the medallions but leased them to drivers who worked as independent contractors. However, the company did also have a number of employees that included mechanics, dispatchers, office workers, and other employees.
The first aspect of the payroll tax fraud involved concealing the size of the company payroll from the IRS. By concealing the size and scope of the company payroll, Tutunjian was able to fraudulently reduce the company’s payroll tax obligations. One method Tutunjian used to accomplish this aspect of the payroll tax fraud was to pay employees entirely or partially in cash. Company employees also included undocumented immigrants who were not authorized to work in the United States. These individuals were paid entirely in cash. Cash payments were not recorded in the company’s books or records.
Tutunjian also endeavored to reduce the company payroll by failing to pay the required overtime rate for employees who worked more than 40 hours. Furthermore, Tutunjian required employees who did work more than 40 hours to engage in special procedures to further conceal the time worked. He required these employees to misrepresent their time worked which was then sent to an outside payroll processing company. Tutunjian would then compensate employees for the additional work performed in cash at the normal rate rather than at time-and-a-half.
The scheme also included helping employees fraudulently obtain federal housing benefits by misrepresenting income.
In August 2016, Tutunjian pleaded guilty to five counts of tax evasion. He also pleaded guilty to additional fraud charges arising from the scheme including employing illegal aliens and violations of the FLSA.
As punishment, Tutunjian was sentenced to serve 20 months of probation of which 18 months must be served at the Coolidge House. The Coolidge House is a “community correctional facility.” Tutunjian is responsible for covering the costs of his sentence at a rate of the greater of $28,999 per a year or 25% of his income over the same 18-month period. Tutunjian was also ordered to pay nearly $1.4 million in restitution to the IRS and an additional $699,717 in restitution to the U.S. Department of Labor.
However, the consequences of this fraud do not stop with Tutunjian. His company, EJT, was also sentenced to 20 months of probation and required to pay restitution to the U.S. Department of Housing and Urban Development. Employees who filed taxes based on the fraudulent payroll documents will need to amend their tax returns. Furthermore, the understatement of their income may affect their Social Security benefits unless corrective action is undertaken.
If you are concerned about your company or bookkeeper’s handling of payroll and employment taxes, seek the guidance of an experienced tax attorney as soon as possible. A tax attorney can help you address payroll tax concerns before the IRS or California Employment Development Division launch an audit that can derail your commercial operations and potentially lead to criminal tax consequences. To schedule a reduced rate, confidential tax consultation, call the tax attorneys at the Tax Law Offices of David W. Klasing by dialing 800-681-1295. We have tax law offices conveniently located in Los Angeles and in Orange County.