On October 2, 2017, Swansea, Massachusetts-based restaurant owner and temp agency operator Souleang Kane, 48, pleaded guilty to nearly two dozen counts of assorted financial crimes involving tax evasion, including five counts of mail fraud and 18 counts of willful failure to collect and pay tax. On January 9, 2018, Kane was sentenced in Boston federal court to a prison term of two years. She was also ordered to pay restitution, and will further be subject to three years of supervised release upon release from federal prison.
According to a press release issued by the Department of Justice (DOJ), Kane, who was also the previous owner of 5 Star Restaurant in Providence, “operated a series of temporary employment agencies under the names Expert Staffing, Affordable Staffing and M&K Temp Inc., which provided labor for Massachusetts companies in agricultural industries” over the period from 2010 to 2015. During this time, Kane intentionally neglected to report approximately $4.3 million in employee wages to the Internal Revenue Service (IRS) in what prosecutors described as a “long-term tax fraud scheme under the guise of a temporary employment agency.”
By failing to report the employee wages, Kane violated the legal requirement for employers to collect and pay (1) taxes that must be withheld from employee wages (such as the 6.2% social security tax, which must be withheld under the Federal Insurance Contributions Act or FICA), and (2) the matching taxes which must be paid by the employer. As the IRS explains in one publication on employment taxes, “Employers generally must withhold part of social security and Medicare taxes from employees’ wages and you pay a matching amount yourself.”
By failing to report the wages, Kane also managed to avoid paying approximately $1,996,300 in assorted taxes, including approximately $165,300 in workers’ compensation premiums, approximately $431,000 in state taxes, and – most significantly – approximately $1.4 million in federal taxes.
As the press release explains, Kane avoided paying the full workers’ compensation premiums by deliberately underreporting payroll to her business’ workers’ compensation insurance provider. This is a crime known as workers’ compensation fraud, an offense which, interestingly, the National Insurance Crime Bureau (NICB) has described as “the fastest growing segment of insurance fraud.”
According to prosecutors, Kane repeatedly engaged in an illegal banking practice known as “structuring,” which our tax attorneys recently discussed in a prior article from our tax law blog, to “facilitate the scheme.” In the sentencing memorandum, Assistant U.S. Attorney Victor Wild stated that Kane “structured hundreds of thousands of withdrawals among her various bank accounts.” As the article linked above explains in greater detail, a person engages in structuring when he or she makes transactions or bank deposits below $10,000 – the threshold at which bank deposits or business transactions must be reported to the IRS using Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business) – with intent to avoid the reporting requirement. The rationale behind anti-structuring laws is that money launderers, terrorists, drug dealers, and other criminals frequently engage in structuring to avoid attracting government notice.
Kane’s attorneys attempted to persuade U.S. District Court Senior Judge Douglas P. Woodlock to impose a shorter sentence or probation, citing her troubled childhood in war-torn Cambodia. However, this argument was deflected by prosecutors, who countered that “rather than honor the nation, public services and business practices that provided her such protections,” Kane instead chose to break its laws – defrauding other immigrants in her employ in the process.
Another tax crime conviction, another lengthy prison sentence. Kane’s case is hardly unique, nor was its outcome particularly surprising, considering the numerous defendants who are investigated by the IRS and successfully prosecuted by the DOJ for suspected tax crimes each year. To paint a more specific picture, the IRS reports initiating 3,395 investigations during fiscal year 2016 – an average of nine new investigations initiated per day – culminating in 2,672 convictions.
The lesson here is that business owners and other taxpayers should take measures to comply strictly with the Internal Revenue Code. With skilled and meticulous tax guidance from an experienced CPA or business tax attorney, it is perfectly possible to use the Tax Code strategically and adhere to state and federal tax laws. As Kane’s case (and thousands of others) should make amply clear, the legal and financial risks of violating federal tax laws, even unintentionally, are simply too great.
Make sure you have sound and reliable guidance when withholding employee taxes, making large cash transactions or bank deposits, or determining your other tax obligations as a business owner. Whether you need a tax audit attorney to provide guidance during an IRS audit, are in urgent need of a criminal tax defense attorney, or are simply looking for lawful ways to minimize your tax liabilities as a small business owner, the experienced California tax lawyers at the Tax Law Offices of David W. Klasing can provide personalized and dedicated assistance for all your individual and business tax needs. To arrange a reduced-rate tax consultation with our zealous and knowledgeable tax and accounting professionals, contact our law offices online, or call Tax Law Office of David W. Klasing today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
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