Small Business Owners Sentenced for Tax Evasion and Fraud

Small business owners probably have no shortage of reasons to attempt to cut costs. Perhaps the business is already in a difficult financial spot due to cost and supply increases and the business owner is merely trying to make both ends meet. In other circumstances the business owner may simply make a serious and severe error due to a lack of knowledge and resources that would have made compliance more likely. In still other situations, the actions of the owners may be motivated by the desire to make more money or to have nice things. However, regardless of the reasons behind your business need to cut costs there are right ways to pursue this goal and ways that are likely to result in civil or criminal tax charges.

For small business owners, it is essential to know that cheating or evading one’s payroll taxes and other obligations like workers’ compensation insurance obligations is never a viable long-term strategy. While the company may save some money for a few quarters or maybe for a year, such action by small business owners is readily identifiable by the IRS and California Employment Development Division. Small business owners that engage in behaviors of this type are likely to face criminal prosecution which can include a lengthy prison sentence and other monetary penalties.

Siblings Engaged in a Workers’ Compensation and Tax Fraud Scheme

Starting in July 2010 and continuing until about July 2013 Michael George Mello Jr. and Mary Catherine Rodriguez, siblings, engaged in a tax and insurance scheme intended to reduce business costs and increase profitability. During this time the convicted individuals engaged in fraudulent behavior by significantly underreporting the number of employees and their payroll when completing their workers’ compensation insurance application. The inaccurate statements permitted their company, Green Valley Landscaping, to obtain insurance coverage for significantly lower than market rate.

Further compounding the sibling’s liability in this matter is their failure to satisfy business tax obligations. The siblings failed to take, hold, and pay over payroll tax deductions from their employee’s wages. Furthermore, required contributions to the unemployment insurance fund were not made. Prosecutors state that the tax fraud committed by the Mello and Rodriguez swindled the insurance company out of $144,672 in premiums. The EDD was shortchanged by $110,462.

Siblings Plead No Contest Sentenced on Tax Evasion and Insurance Fraud Charges

On Thursday September 10, the Sacramento Country D.A.’s Office announced that both defendants pleaded no contest to the respective charges they faced. Michael George Mello, Jr. pleaded no contest to felony tax evasion and insurance fraud charges. For his role in the scheme, Mello will serve 30 days in jail followed by a five year sentence for probation. He is also required to repay the amounts stolen from the insurance company and the EDD. He must pay back $144,672 in restitution to the workers’ compensation carrier and $110,462 to the EDD.

Mary Catherine Rodriguez faced misdemeanor tax evasion charges. She pleaded guilty to these charges. After pleading guilty to the charges Rodriguez was ordered to serve three years of probation and 50 hours of community service. Rodriguez is also liable for restitution to the California EDD. She owes $110,462 to the Division jointly with her brother.

Facing Tax Evasion or Fraud Charges in California?

Small business owners in California must contend with both the IRS and California’s own tax agencies like the EDD and franchise Tax Board. Failure to satisfy these tax obligations can result in an investigation, audit, and potential criminal tax enforcement action. Furthermore, a tax audit by a state tax agency can result in a disclosure to the IRS and additional tax trouble at the federal level.

While it is clearly in your best interest to maintain tax compliance at all times, mistakes and oversights can occur. In small businesses that lack the level of resources found at large corporations, the chance of an oversight or mistake is much greater. If you are facing serious tax evasion or fraud charges the dedicated and experienced tax attorneys of the Tax Law Offices of David W. Klasing can fight to mitigate the consequences you face. To schedule a reduced-rate consultation with an experienced tax professional call us at 800-681-1295 or contact us online today.