The former CEO and VP of Finance for a Virginia-based software company conspired in an attempt to defraud the government of nearly $2 Million in employment tax withholdings. While they under reported income, they also shortchanged employee retirement funding by $225,000.
From the Department of Justice press release:
According to documents and information provided to the court, Robert Lewis was the Chief Executive Officer and Kristie Lynn McDonald was the Vice President of Finance and Administration of a software company in Sterling, Virginia. From January 2011 to February 2013, Lewis and McDonald conspired to defraud the United States by failing to pay over to the IRS more than $1.8 million in payroll taxes withheld from employee paychecks.
As part of their scheme, Lewis and McDonald admitted that they circumvented the company’s normal payroll and accounting procedures by paying some employees with manual checks. The employees still received their correct salary, but by bypassing the accounting system, Lewis and McDonald were able to hide the fact that the withholdings were not being paid over to the IRS. Lewis and McDonald admitted that the practical effect of their scheme was to conceal the company’s failing financial condition from its Board of Directors. Lewis and McDonald also admitted that they caused the company to file false quarterly employment tax returns with the IRS under reporting the amount of tax due.
Lewis and McDonald further admitted that, during this same period, they intentionally failed to remit the full amount of employee retirement contributions to the company’s retirement plan. Through their actions, the company failed to transfer and credit nearly $225,000 in voluntary employee retirement withholdings.
Lewis and McDonald admitted that they used the misappropriated money to pay the operating expenses of the company, which included their own six figure salaries and salary raises for other employees.
U.S. District Judge T.S. Ellis III scheduled sentencing for Lewis on June 29 and for McDonald on June 22. Lewis and McDonald each face a statutory maximum sentence of five years in prison, as well as a period of supervised release and monetary penalties. They further agreed to restitution in the amount of $1,812,706.
Consult an experienced tax controversy attorney
Any allegation of wrongdoing from the IRS, including examples like the one noted above, should be taken seriously. Penalties for violations are often harsh. In addition to steep financial penalties, criminal penalties can also apply. As a result, anyone accused of a tax violation is wise to seek legal counsel.