Employment Tax Tangle Ends in Prison Time for Company CEO

witholding payroll taxesPayroll taxes are a hard and fast responsibility of those who employ others.  For two C-Suite execs, their desire to conceal a business downturn got the better of their common and fiduciary sense.


Collecting, accounting, and paying employment taxes are an important task of business management.  In addition to withholding federal income and unemployment taxes, employers must withhold and match social security and Medicare taxes.  The Internal Revenue Service (IRS) expects, and the laws demand, an accurate reporting of money earned and taxes withheld and paid by employers and employees.


According to the Justice Department, when Virginia-based company EnterWorks Inc. moved toward the red, the CEO and the Vice-President of Finance decided to cook the books in order to avoid reporting the condition to the company’s Board of Directors.


An old scheme


Unfortunately, limiting payroll tax payments to cover operating expenses is an old scheme.  In this case, the pair created a manual workaround to the company payroll system that allowed them to provide regularly-apportioned paychecks to employees, but which skirted the accounting system.  This allowed CEO Robert Lewis and Finance VP Kristie McDonald to conceal that withholding taxes were not being paid to the IRS as required.


Many employers and administrators who go down this path do so for their own enrichment.  Purloined proceeds turn into opulent homes, vehicles, trips, or other luxury items.  For these two execs, the point was to hide the economic downturn of the company and continue to pay operating expenses, including their own six-figure salaries.


As you might expect, it did not go well.  It may never be known if Mr. Lewis or Ms. McDonald considered getting legal help after they stepped over the line with the IRS.  As tax lawyers with significant criminal defense experience, this is precisely the type of situation where we work with our clients to confidentially uncover legal difficulties and develop solutions.


Options could include an Offer in Compromise, which is an agreement for a taxpayer to settle their liabilities with less than is owed, an installment agreement, or other negotiation to mitigate criminal charges and give the taxpayer or entity a way out of the tax fraud.  This type of intervention stops the slippery slide toward prison and may salvage a career—or a company.


Caught and sentenced


In this case, Mr. Lewis and Ms. McDonald did not pay over the employment taxes and oversaw filing of false tax returns that did not accurately report the amount due.  In addition, the pair did not move $225,000 in voluntary employment retirement holdings into the company retirement plan and instead used the money for company operating expenses.


The end result for Mr. Lewis is 21 months in federal prison for defrauding the government.  He will also serve three years of probation and pay $1,812,706 in restitution. His cohort in crime, Ms. McDonald was sentenced to 15 months in prison, followed by the same term of probation and restitution.


It is common for those with fiduciary responsibilities to look for help when their company is in financial difficulty.  If this happens to you, contact an experienced tax attorney for options and representation to get your company on the right track – and keep you out of jail.


Skilled Cleveland tax attorneys protect your company and your rights


In Cleveland, Chicago, and internationally, Robert J. Fedor, Esq., LLC provides comprehensive legal strategies and solutions for persons or entities notified of an IRS civil tax audit, employment tax dispute, or other tax controversy.  Contact us or call 800-579-0997 today.


Download Our Wage Garnishments eBook