A recent Jacksonville, Florida tax crime offers a mashup of payroll tax fraud, shell company schemes, workers’ compensation fraud, and cooked books for good measure.
Along with a crew of conspirators, Honduran national Jose Molina-Herrera set up a business helping contractors and subcontractors avoid paying employer payroll taxes—for a fee. Molina-Herrera used his company, All National Remodeling LLC, as a shell entity to pay cash wages to workers and provide fraudulent workers’ comp insurance certificates to the contractors.
According to the Department of Justice, Molina-Herrera ran his scam from 2019 through 2020. For a business providing payroll services, the Internal Revenue Service (IRS) expects business owners to maintain accurate records of employee rolls, wages, and payroll taxes withheld and paid over to the U.S. Treasury. For a fee of between six and eight percent of the payroll managed—Molina-Herrera did the opposite.
Blatant Employment Tax Fraud
All National Remodeling did not accurately record payroll taxes withheld or paid over, workers were paid under the table, and the contractors involved with the scheme used sketchy certificates of insurance to prove their workers were insured—although the contractors paid no insurance premiums. Cash was withdrawn from the shell company to pay workers, with no accounting or taxes paid.
The overall damages of the scam were impressive. Workers were paid more than $14M in cash wages without employee withholding, causing a loss of $3.5 million in taxes. Given the fraud, the insurance company with which All National Remodeling worked was taken for more than $2.2 million. Payroll tax crime does not affect just the IRS. Employees who are paid in cash, without payroll tax withholding, are not credited for purposes of social service programs like Social Security.
All National Remodeling was the subject of an IRS criminal tax investigation which resulted in successful prosecution. Noted an IRS Special Agent, “using shell companies to pay workers under the table is not only illegal, it gives an unfair competitive advantage that businesses who do things the right way can’t match. We will continue to investigate these schemes to ensure compliance with the law and return competitive balance to the industry.”
For his part, Molina-Herrera pled guilty and was sentenced to more than two years in prison, one of his partners received more than four years behind bars. In addition, Molina-Herrera will pay approximately $3.5M to the IRS and forfeit another $867,005 in ill-gotten gains. Only Molina-Herrera knows if it was worth it.
Worried About Being Charged with Tax Fraud?
With employment tax crime or shady dealings with shell companies, the best defenses are knowledge and a highly skilled legal tax defense. If you are involved in any tax crime or scam, the earlier you involve an experienced criminal tax attorney, the better your chances. Or—you can wait. Like Molina-Herrera, the choice is yours. Call us at 440-250-9709 or reach out to set up a consultation. We serve domestic and international clients from offices in Cleveland and Chicago.
Not sure what to expect if you're under scrutiny? Download our free eBook, Will I Be Charged with Criminal Tax Fraud?, for insights into warning signs, legal defenses, and what to do if the IRS comes knocking.
