Cashing in on Fraud

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Check cashing businesses are convenient because multiple financial needs can be taken care of at one time for a small fee. Customers can pay a variety of bills including utilities, mortgages or credit card bills all at once. Sometimes, small businesses also use check cashing companies to make payroll for their employees. This is often more convenient than working through a bank because financial institutions can charge higher fees or can place a hold on company funds, creating cash flow issues. A Department of Justice press release details how the owner of a construction business used a check cashing business to conveniently hide the fact he neglected to collect and pay employment taxes to the Internal Revenue Service (IRS).

The press release states that the owner of three construction companies used a check cashing service to cash more than $10.5 million in gross receipts. Over a two-year period, the owner hid the transactions from his tax return preparer, which meant the income was not reported on company tax returns.

The owner reportedly paid his employees in cash, but failed to collect and pay employment taxes to the IRS. (He also kept a few dollars for his own enjoyment. Fraudsters always do.) When he found out that a criminal investigation had been opened, he lied to IRS investigators and shredded his business records to conceal his illegal activity. It is estimated that his fraudulent actions cost the government between $1 and $2.5 million.

The construction company owner pleaded guilty to the willful failure to collect and pay employment taxes and faces a maximum sentence of five years in prison. He is also looking at a $250,000 fine. (What about the other $750,000 to $2.25 million?)

There are many reasons why an employer might not pay employment taxes, which include federal income tax withholding, Social Security, Medicare, unemployment insurance taxes and in some states, workers compensation. Who knows why he did it? Perhaps this fraudster intended to ”borrow” the money during an economic downturn and pay it back when his business was on the rebound. Or maybe he was selfish and thought he deserved to keep most of the cash for himself. One thing is for certain: this business owner not only stole from the U.S. Treasury, but he also robbed his employees of future benefits they had earned. Perhaps while serving time, he’ll come to understand how inconvenient fraud can be.

Source: Today’s ”Fraud of the Day” is based on a press release titled, ”Owner of New York Construction Companies Pleads Guilty to Tax Fraud,” published by the Department of Justice on June 9, 2014.

Eric Anderson, of Dix Hills, New York, pleaded guilty today in the U.S. District Court for the Eastern District of New York to the willful failure to collect and pay over employment taxes, the Justice Department and Internal Revenue Service (IRS) announced.

According to court documents, Anderson owned three construction companies located in Dix Hills: Anderson Framing, Anderson Enterprise and Anderson Trim Specialty. Anderson corruptly endeavored to obstruct the IRS between 2006 and 2008 by using a check cashing service to cash over $10.5 million of gross receipts checks paid to his construction companies. He concealed his check cashing activities from his tax return preparer so that the income was not included on the companies’ tax returns. Anderson paid his employees in cash while failing to collect and pay over employment taxes to the IRS. He also diverted cash receipts earned by his companies for his own personal use. Finally, after learning of the criminal investigation, Anderson shredded business records and lied to IRS investigators about his use of the check cashing service. The estimated tax loss resulting from Anderson’s activities is between $1 and $2.5 million.

 

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.