IRS Increases Number of Auditors by 249% This Fall
IRS federal employment tax audits are increasing this fall. While the audit program is not focused on fraud, they have increased the number of investigators looking into fraud by 249%. Also, the average sentence imposed on those employers convicted of tax fraud is 29 months. Because workers’ compensation insurance premiums are based in part on its payroll, misrepresenting the number of employees and payroll can result in an employer being charged a lower premium than it actually owes, and increases its competitive advantage over its competitors.
We are already starting to see huge fines and prison time.
- On July 29, 2009, the owner of an asbestos-removal company based in Queens, New York, was sentenced to 46 months in prison, and ordered to pay $1.6MM in workers’ compensation premiums, for a worker misclassification scheme. While the owner claimed to have only one employee, a receptionist, he actually used crews of Korean immigrant workers to handle the removal projects. He also frequently changed the name of his company to avoid detection. The scheme lasted for a decade. When he completes his prison sentence, the owner will also most likely be deported, since during this process the Court determined that he was also an illegal immigrant.
- On August 21, 2009, a California-based company pled guilty and was ordered by a Travis County, TX district court to repay Texas Mutual Insurance Company $200,000 for its part in an insurance scheme. The Erection Company and its owner admitted to intentionally misrepresenting the number of its employees and its payroll to Texas Mutual.
- Crime doesn’t pay, and neither does creativity: On August 14, 2009, a federal grand jury in Las Vegas found a man guilty of 57 counts of fraud and tax evasion. The owner of several businesses in Las Vegas paid his employees with gold and silver coins and argued that they could pay taxes only on the face value of the coins and not the true market value. He classified them as independent contractors and paid them with $50 U.S. gold coins. As a result, their income was less than that required to file taxes, so they didn’t file. Most employees, however, immediately exchanged the coins for cash at market value, which far exceeded the face value. Prosecutors said the man paid at least $25MM in untaxed wages to his employees and about $95MM to people who worked in client companies. The man was released pending sentencing.