Over the years, employees at businesses can gain the trust of business owners. Over time, an employee may even be promoted to manage the finances and operations of a business. However, with management responsibilities come an array of duties and obligations. At the most basic level, the employee must handle their duties honestly and in good faith. However, beyond this minimum excepted level of behavior, there are several legal business tax obligations an office manager can be tasked with oversight over including:
Many employees will dutifully perform these and other tasks for years or decades dutifully and faithfully. However, business owners are cautioned that over time an employee may begin to feel entitled or disgruntled and start to embezzle from their employer. They can begin to believe that their years of trusted service has placed them beyond suspicion even where inconsistencies in the records invariably indicate that potential fraud has occurred. While these schemes may go undetected for a period, reputation alone cannot shield an employee once an outside professional undercover a definitive paper trail that illustrates the fraud perpetrated against the employer. The following illustrates this concept.
In January 2016, Anntwine Moss pleaded guilty to stealing more than $500,000 from her employer. Moss was the office manager at Thoracic and Cardiovascular Surgery of Alabama located in Birmingham. Prosecutors state that the scam carried out by Moss began as early as 2006 and continued until 2013.
The scheme was premised upon Moss’s authority as the company’s office manager. In this role, she was authorized to write checks, engage in financial transactions for the practice, and use the company credit card. Moss was also granted the authority to oversee payroll, the firm’s general financial health, and payroll obligations.
Moss abused her authority to carry out transactions for the business. Rather than carry out the business of the practice in good faith, Moss used the company accounts as her own personal piggy bank and enriched herself. Moss wrote checks to herself and to her boyfriend. She also made unauthorized deposits from the firm into her own bank account. Moss also improperly utilized the company’s credit cards to pay for luxury goods and personal expenses. She did not report this illegal income on her tax returns.
The office manager was charged with and pleaded guilty to five counts of wire fraud and four counts of tax evasion. While the wire fraud charges may seem obvious, some people may have difficulty understanding why this scheme also triggered tax evasion charges. As a starting point, consider that the official IRS tax instructions state that taxpayers must report:
Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.
More information regarding a taxpayer’s responsibility to report “illegal income” is set forth in IRS Publication 17. However, for purposes of this post, it is important to know that taxpayers who fail to report any form of income on their tax return can face civil and criminal tax penalties. This is because taxpayers authenticate their annual tax return under the penalty of perjury. When taxpayers knowingly fail to include income on their return despite indicating that all information is “…. to the best of my knowledge and belief…true, correct, and accurately list all amounts and sources of income I received during the tax year…” criminal tax penalties can apply.
In this case, Moss was sentenced to a 3 year and five-month federal prison sentence. Moss was also ordered to pay $987,375 in restitution to her former employer and was ordered to forfeit the same amount to the government as proceeds of illegal activity.
If you are worried about tax fraud by an employee, the tax lawyers and forensic accountants of the Tax Law Offices of David W. Klasing can investigate your company’s books and records to uncover and quality any past embezzlement. If you or your organization have been accused of engaging in fraud or tax evasion, we may be able to provide strategic and aggressive representation for an IRS audit, investigation, or tax litigation. To schedule a confidential reduced rate consultation at our Low Angeles or Irvine law office, please call 800-681-1295 or contact our firm online.
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