According to a Department of Justice press release, a California man was sentenced to prison for his role in a decade-long scheme to avoid paying employment taxes to the IRS. If you are a business owner or someone responsible for payroll (employee or executive) and have failed to meet your employment tax obligations, or if you have failed to file one or more payroll tax returns, it is critical to contact an experienced tax attorney as soon as possible to evaluate your situation and take corrective steps before the government initiates civil or criminal tax enforcement action.
Defendant Used Payroll Withholdings to Furnish Lavish Lifestyle
Court records reveal that John Comeau, of Santa Clara, was the CEO of Vivid Inc., a metal coating company that served industrial clients in California and other parts of the country. Vivid employed as many as 40 individuals during the time period in question. As the company’s chief executive officer, Comeau was responsible for ensuring that employment taxes, specifically Social Security, Medicare, and federal income taxes withheld from employees’ wages, were timely paid to the IRS each quarter
From the first quarter of 2010 through the end of 2019, Vivid paid its employees over $8.8 million in total wages. While Comeau caused the company to withhold employment taxes from those wages, he failed to remit all of the required amounts to the IRS. Instead, he submitted false quarterly employment tax returns that underreported the company’s total payroll by more than $5 million. These filings made it appear that Vivid owed significantly less in employment taxes than it actually did.
In an attempt to conceal the scheme, Comeau caused varying forms of tax documentation to be issued to employees. In some cases, the employees received accurate W-2 forms that reported their full wages, even though those wages had not been fully reported to the IRS. In other instances, the employees received W-2s that underreported their actual wages. Because the Social Security Administration relies on these records to calculate future retirement benefits, this type of fraud can have long-term negative consequences for the employees, many of whom may be unaware that their benefits have been affected.
Rather than using the withheld taxes for their intended purpose, Comeau used the funds to support a comfortable lifestyle, which included the purchase of luxury vehicles and a $3 million home. By withholding tax from employees and failing to pay those funds to the government, Comeau effectively used federal funds for his own personal benefit.
The government calculated the total tax loss resulting from the scheme at more than $1.1 million. Comeau was sentenced to one year and one day in federal prison and ordered to serve three years of supervised release upon completion of his term of physical incarceration. He was also ordered to pay more than $1.15 million in restitution to the IRS, representing the tax loss he caused.
The Serious Repercussions of Neglecting Employment Tax Obligations
This case is a stark reminder that the federal government treats unpaid employment taxes with a high degree of seriousness. Taxes withheld from employee paychecks are considered “trust fund taxes,” which means the employer is holding those funds in trust on behalf of the federal government. Failing to remit employment taxes is treated as a direct misuse of government resources. Business owners who treat these funds as operating capital or who delay remittance during times of cash flow shortages run a significant risk of civil enforcement and, in more egregious cases, criminal prosecution.
If you are responsible for payroll tax compliance and are behind on filings or payments, the worst option is to ignore the problem and hope it goes unnoticed. IRS enforcement programs routinely identify discrepancies in payroll filings, and red flags like unfiled Forms 941 or inconsistent W-2 reporting often lead to deeper audits or criminal referrals. The earlier a business takes corrective action, the more options are available to resolve the matter civilly. In many cases, the IRS will work with taxpayers to develop payment plans or settle tax debts, but those opportunities disappear quickly once an eggshell audit or criminal tax investigation begins.
If you have withheld taxes from employees but failed to turn those amounts over to the IRS, or if you have submitted inaccurate employment tax returns, it is in your best interest to consult with an experienced employment tax attorney as soon as possible. Together, you will be able to develop a plan to get right with the government. The longer the delay, the more likely it becomes that the government will pursue the matter through criminal enforcement. By taking a proactive approach, you may be able to avoid the kinds of consequences that the defendant above faced and protect yourself, your business, and your employees from lasting harm.
