Here’s a scheme that has a somewhat better chance of working than the usual employer tax fraud (of not remitting employment taxes, a scheme with a 0% chance of working). Let’s pay employees “under the table” using income to pay for it. I’ll take remittances, cash them at a check cashing location, and then pay my undocumented employees using the cash I generate. The employees won’t complain, so I won’t be caught! And I’ll pay less in income taxes and workers compensation! What can go wrong?
Ignoring the multiple felonies being committed (tax evasion and workers compensation fraud to start), this scheme will likely be discovered in time. Some undocumented employees actually file tax returns, and those taxes won’t match. A 1099 might be issued from a customer, and that income might not make it onto the books of the company. Or the workers compensation company might get suspicious: How are you doing all of your work without that many employees?
A Watertown, Massachusetts business owner executed this plan. He began paying his employees (of a window and gutter cleaning company) under the table in 2008…and it worked! So he continued this plan for 2009, 2010, 2011, and 2012. The Department of Justice press release doesn’t say when someone caught on, but someone did. IRS Criminal Investigations, Homeland Security, and the Massachusetts Insurance Fraud Bureau all investigated. This past week Richard Moxley pleaded guilty to one count of tax evasion and one count of mail fraud. Mr. Moxley will likely be heading to ClubFed.
As usual, the best idea is simply to pay employees “above the table” and pay your taxes…but that rarely occurs to the Bozo mind.