When an employee signs a contract to commence work for an employer, there is usually a sense of trust that is instilled between both parties.  The employer expects the employee to act in the best interest of the company, show loyalty to the company and perform duties in an acceptable manner, amongst other things.  In return, the employee expects to be paid for said duties preformed; it is highly unlikely an employee expects the employer to commit tax refund fraud.  A Dayton Daily News article reveals how one company broke that trust between employer-employee.

A former Chief Executive Officer (CEO) of a Cincinnati company was sentenced to 15 months in prison and ordered to pay $12 million in restitution after pleading guilty to $26.7 million in tax fraud.  (Go big or go home.)  The company at issue employed 40 individuals, and acted as a co-employment company – meaning that it hired a client’s employees, becoming their employer of record for tax and insurance purposes.  The company allowed business owners to outsource the management of human resources, employee benefits, payroll and workers’ compensation and other strategic services.  (It looks like they do it all – even fraud.)

According to court documents, the former CEO helped with the preparation and filing of false corporate tax income forms, specifically in their third quarter of 2007.  The false submission stated that the co-company paid employees $2.4 million, incurring a tax liability of nearly $600,000. In reality, the co-company paid its employees $6.6 million, incurring a tax liability of $1.7 million.  (Oh, two million-six million…what’s the difference?)  An investigation found additional false corporate tax income forms submitted in the third and fourth quarters of 2007.  A special agent of the Internal Revenue Service (IRS) explained, “Corporate executives have a significant responsibility to collect and turn over all IRS withholding taxes.”  He went on to reveal the effect of these poor decisions on employees, ultimately resulting in the loss of their tax benefits due to the company’s fraud.

It’s clear to see this CEO didn’t get the memo about how committing fraud usually lands you in jail. Maybe $12 million will make him think twice next time.  As for the employees, this mistrust might be a long lived issue with the company – I am sure they didn’t sign up for fraud when they started working there.

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