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Florida Man Sentenced to Prison for Evading Federal Payroll Taxes

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Florida Man Sentenced to Prison for Evading Federal Payroll Taxes

Payroll Fraud

Payroll tax evasion involves deliberately avoiding paying required payroll taxes by businesses or individuals. This deceptive practice often includes underreporting wages, misclassifying employees, or utilizing off-the-books payment methods to conceal payment of wages. The consequence of payroll tax evasion is twofold: harming the government's revenue stream and undermining the integrity of programs funded by these taxes, such as Social Security and Medicare.

In Orlando, Florida, Wendel Algarin has been sentenced to 30 months in federal prison for orchestrating a scheme that defrauded the Internal Revenue Service (IRS) of over $3.5 million in tax revenues between 2012 and 2019. Acting as a facilitator for subcontractors, Algarin manipulated three shell companies to pay undocumented construction workers "off the books," earning nearly $2 million in fees for his role. The sentencing, handed down by U.S. District Judge Wendy W. Berger, reflects the commitment of IRS-Criminal Investigation to uphold a just tax system and addresses the broader implications of Algarin's fraudulent activities.

If you have civil or criminal tax exposure, get help from our Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by dialing (800) 681-1295 or click here to schedule a reduced rate initial consultation.

The Tax Evasion Case Against Wendel Algarin

In Orlando, Florida, U.S. District Judge Wendy W. Berger handed down a 30-month federal prison sentence to Wendel Algarin following his guilty plea on August 15, 2023. The sentencing stems from Algarin's involvement in a conspiracy to defraud the Internal Revenue Service (IRS) between 2012 and 2019.

Uncovering the Scheme

Court documents reveal that Algarin orchestrated a deceptive scheme to aid various subcontractors in evading payroll taxes and workers' compensation insurance premiums. His method involved facilitating the payment of undocumented construction workers "off the books" by collaborating with subcontractors. Algarin operated three shell companies, allowing subcontractors to list them as employers for their workers. In return for his role in this scheme, Algarin received almost $2 million in fees, which he utilized to finance a lavish lifestyle, including purchasing multiple luxury automobiles.

Impact on Tax Revenues

The consequences of Algarin's actions extended beyond personal gain, as the scheme defrauded the United States government, depriving it of more than $3.5 million in tax revenues. The sentencing underscores the severity of his offenses and the importance of upholding a just and impartial tax system.

IRS-Criminal Investigation's Response

Tara K. Reed, IRS-Criminal Investigation (CI) Acting Special Agent in Charge, expressed concern over Algarin's deliberate plan to defraud American taxpayers. She highlighted the negative impact on the workers' compensation insurance industry due to the employment of undocumented workers. The sentencing reflects the commitment of IRS-CI to thoroughly investigate and establish a fair tax system that allows all businesses to operate within legal parameters.

Investigation and Prosecution Details

The Internal Revenue Service: Criminal Investigation thoroughly investigated the case, showcasing law enforcement agencies' dedication to uncovering and addressing fraudulent activities. Assistant United States Attorney Chauncey A. Bratt led the prosecution efforts, emphasizing the collaborative pursuit of justice in financial misconduct cases.

Common Forms of Payroll Tax Evasion

Payroll tax evasion can arise in several different forms. If you are accused of committing any of the following, then our Dual-Licensed Tax Lawyers & CPAs will help build your defense:

Underreporting Wages

One prevalent form of payroll tax evasion involves underreporting wages, where businesses intentionally misstate employee compensation. This deceptive tactic aims to reduce the amount of taxable income subject to payroll taxes, thereby minimizing the employer's financial obligations to the government.

Misclassification of Employees

Another common practice is the misclassification of employees as independent contractors. Businesses can sidestep payroll tax responsibilities by categorizing workers inaccurately, as independent contractors are typically responsible for their own tax obligations. This evasion tactic not only results in a loss of tax revenue for the government but also deprives workers of benefits and protections associated with employee status.

Off-the-Books Payments

Engaging in off-the-books payments is a more covert form of payroll tax evasion, where businesses pay employees in cash or through undocumented means, leaving no paper trail. This method allows employers to conceal the true extent of their workforce and underreport wages, contributing to a reduction in payroll tax liabilities while facilitating a lack of transparency in financial transactions.

Shell Companies and Phantom Employees

Some unscrupulous entities establish shell companies or create phantom employees to manipulate payroll tax obligations further. By funneling payments through these fictitious entities or individuals, businesses can create the illusion of legitimate transactions while evading taxes. This sophisticated form of evasion complicates the detection process, making it challenging for authorities to trace and address the fraudulent activities.

Potential Defenses to Payroll Tax Evasion Charges

The process for defending against payroll tax evasion charges can be complicated. For instance, any of the following strategies may be implemented by our legal team:

Disputing Employee Classification

A potential defense in payroll tax evasion cases involves disputing the classification of workers. Businesses may argue that certain employees were correctly categorized as independent contractors based on the nature of their work and the degree of control they exercised over their tasks. Establishing a legitimate independent contractor relationship can provide a basis for challenging charges related to misclassification.

Documentation Accuracy

Defendants may assert that any discrepancies in payroll records or tax filings were unintentional errors rather than deliberate attempts to evade taxes. This defense strategy relies on demonstrating the absence of fraudulent intent and highlighting any corrective actions taken once the inaccuracies were identified. Adequate record-keeping and transparent communication about payroll procedures can support this defense.

Demonstrating Lack of Knowledge or Intent

A defense strategy may involve proving that the accused party lacked the knowledge or intent to engage in payroll tax evasion. It could demonstrate that individuals responsible for payroll and tax matters were unaware of fraudulent activities and genuinely believed they complied with tax regulations. Establishing a lack of willful wrongdoing can be crucial in building a defense against such charges.

Contact Our Attorneys for Assistance with Your Tax Issues

Get help from our experienced Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or click here to schedule a reduced rate initial consultation.

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