Last week, a federal grand jury in Massachusetts indicted two residents for conspiring to defraud the U.S. government, failing to pay over employment taxes, and obstructing the internal revenue laws. According to a Department of Justice press release, Huong Le and Tien Chau were the proprietors of an employment agency that provided companies in Massachusetts and New Hampshire with temporary workers.
Prosecutors allege that in running their staffing agency, which operated under several different names, Le and Chau paid their employees with cash or “under the table”. The Department of Justice further alleges that the pair lied to the IRS, significantly understating the number of employees that were working for their company. Le and Chau also allegedly failed to report the cash wages paid to their employees, and thus failed to pay the proper amount of employment taxes.
The indictment, which is not an indication of guilt, alleged that Le and Chau used a local check-cashing business to cash the checks provided to them by clients. Those funds allegedly paid to employees while the residual was allegedly kept by Le and Chau. To hide the existence of the bank accounts used to stash extra earnings not reported to the IRS, Le and Chau enlisted other individuals to open nominee accounts for their benefit.
If Le and Chau or convicted on all three counts they are charged with, each could be sentenced to 13 years in prison. The conspiracy and tax fraud charges carry a statutory maximum sentence of five years, while the obstruction charge carries a potential three-year sentence. Additionally, the defendants will likely face a term of supervised release and monetary sanctions, if convicted.
Employers are required by federal law to withhold federal taxes from the paychecks of employees. The amounts withheld must then be remitted to the IRS. Additionally, employers are required to pay employment tax for each employee. Although many (if not most) businesses hire a third-party payroll processing company to perform these services, there are an appreciable amount of small businesses that perform these duties manually. In those situations, it is easy to see how a taxpayer can fall into noncompliance. Employment tax withholding and remittance is not the easiest process, and thus, it is possible that a business may fail to correctly comply with their obligations inadvertently. On the other hand, there are some employers who simply refuse to collect employment tax, or worse, collect employment tax and intentionally use the funds for personal (and typically extravagant) expenses.
The IRS and their Criminal Investigations Division understand that some businesses do not operate within the bounds of the law. In the process of their attempt to single out those who are, some small and medium-sized businesses find themselves unfairly targeted in an examination or an investigation. Whether you know that you or your company has made mistakes with regard to employment taxes or if you simply feel that you are being unfairly targeted, the first step to resolving the issue is contacting an experienced tax attorney.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have experience representing small to medium-sized business owners in a myriad of different tax situations. From routine tax examinations to full-blown criminal litigation, our zealous advocates are ready to defend and protect your physical and financial freedom. When the IRS or state taxing authority comes knocking, they are bringing highly-trained lawyers and investigators trained to secure criminal convictions. Ensure that you answer with a team of experienced tax professionals standing beside you. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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