Employment taxes encompass various contributions withheld from employee paychecks, including federal income tax, Medicare, and Social Security. These taxes are essential for funding government programs and ensuring the financial security of individuals upon retirement or in times of need. Employers who collect and remit such taxes may face serious penalties.
For example, Manuel Tato of Orlando, FL has been sentenced to nearly five years in federal prison for failing to remit employment taxes. Tato, the owner of multiple restaurants, withheld taxes from employees but never remitted them to the Internal Revenue Service (IRS), leading to a hefty fine and restitution order. Tato’s lavish lifestyle helped spurn the criminal tax investigation into his actions, and his attempts to disguise his misconduct resulted in the assessment of even more significant penalties.
Connect with our experienced Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295 or contact us to schedule a reduced rate initial consultation.
The Employment Tax Evasion Case Against Manuel Tato
In a recent development in Orlando, Florida, Manuel Tato has been sentenced by U.S. District Judge Roy Dalton, Jr. to four years and nine months in federal prison for deliberately failing to fulfill his obligations regarding employment taxes. Additionally, Tato has been ordered to pay a hefty $250,000 fine along with restitution amounting to $93,690.66. This verdict comes after Tato’s guilty plea on April 27, 2023.
Background
Court documents reveal that Tato was the proprietor of several restaurants in the Orlando region, including Spice Modern Steakhouse, from 2010 to 2017. He also operated Core Food Group, an entity linked to his restaurants that was responsible for managing employee payroll. With a workforce of approximately 645 individuals during the stated timeframe, Tato was entrusted with collecting and remitting employment taxes, covering federal income tax, Medicare, and Social Security.
Criminal Activity
Despite deducting employment taxes from employee paychecks and indicating as such on paystubs, Tato did not transfer the withheld employment taxes to the Internal Revenue Service (IRS). Specifically, between July 2016 and March 2017, Tato neglected to pay $93,690.66 to the IRS. Over the entire duration of Core Food Group’s existence, Tato evaded payment of over $2 million in taxes owed on behalf of his employees. Employing a convoluted corporate structure, various Federal Employer Identification Numbers, and multiple bank accounts, Tato attempted to obscure his illicit actions.
Lifestyle and Further Offenses
During this period of tax evasion, Tato led an opulent lifestyle, enrolling his children in private schools and residing in a million-dollar estate complete with a private tennis court. Furthermore, despite being aware of the criminal tax investigation into his employment tax delinquency, Tato and his family acquired a beach house in 2020, illustrating further disregard for legal obligations.
Official Response
Tara K. Reed, Acting Special Agent in Charge at the IRS-Criminal Investigation, emphasized the severity of Tato’s actions, condemning his betrayal of both employee trust and national tax obligations.
The sentencing serves as a stark reminder that individuals prioritizing luxury over fulfilling their duties will face serious repercussions. If you are concerned that you may encounter a high-risk tax audit or criminal tax investigation, our Dual-Licensed Tax Lawyers & CPAs are ready to help. We can review your case and determine the best way to avoid harsh criminal and civil penalties like those levied against Manuel Tato.
Common Forms of Employment Tax Fraud
Employment tax fraud can arise in several different forms. For instance, the following are all common ways that perpetrators improperly evade their employment taxes:
Underreporting Wages
Employment tax fraud often involves underreporting wages, where employers deliberately misrepresent the wages paid to employees to lower their employee’s tax liabilities and the company’s payroll tax liabilities. This can be accomplished through various means, such as failing to report cash payments or manipulating payroll records to reflect lower earnings than what employees actually received.
Misclassification of Employees
Another form of employment tax fraud is the intentional misclassification of employees as independent contractors. By categorizing workers incorrectly, employers attempt to avoid paying certain taxes, such as unemployment taxes and workers’ compensation insurance premiums. This practice deprives the government of revenue and denies workers important benefits and protections.
Pyramiding
Pyramiding occurs when employers withhold employment taxes from employees’ paychecks but fail to remit these funds to the appropriate tax authorities. Instead, they use the withheld taxes to fund their operations or personal expenses. This creates a snowball effect where the amount owed to the government accumulates over time, leading to significant financial losses and potential criminal tax exposure for the employer and those deemed responsible parties within the organization.
Payroll Schemes
Payroll schemes involve various deceptive tactics to evade employment taxes, such as falsifying payroll records, creating shell companies, or using multiple bank accounts to hide income. These schemes are often intricate and designed to deceive both employees and tax authorities, making them difficult to detect without thorough investigation.
Underpayment of Employment Taxes
Employers may also simply underpay their required employment taxes, either by neglecting to remit the full amount owed or by failing to pay employment taxes altogether. This deliberate non-compliance with employment tax obligations not only defrauds the government but also undermines the integrity of the tax system and disadvantages competing yet compliant businesses.
Can Living a Lavish Lifestyle Trigger a Criminal Tax Investigation?
Living a lavish lifestyle while being non-compliant can attract the attention of the tax authorities and potentially lead to a criminal tax investigation/prosecution. When individuals conspicuously spend beyond their reported income levels, it raises suspicions of potential tax evasion or fraud. This heightened scrutiny is particularly pronounced when there are significant disparities between reported income and the lifestyle being maintained, such as owning luxury properties, driving expensive vehicles, or frequenting high-end establishments. Tax authorities may initiate criminal tax investigations to ascertain the source of funds funding such a lifestyle and ensure compliance with tax laws. In cases where individuals fail to adequately explain their financial means or provide credible documentation to support their expenditures, they may face criminal tax investigations, audits, or even criminal charges for tax evasion. Thus, living ostentatiously without proper financial transparency can invite unwanted scrutiny and legal consequences from tax authorities.
Call Our Law Firm for Assistance Resolving Your Tax Problems
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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