Taxable Talk

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.

Here’s a scheme that’s sure to work to avoid remitting payroll taxes to the IRS. Every day (or week or month), I’ll form a new business entity that’s collecting the tax. Once the amount due to the IRS gets large, I’ll just use a new entity. The IRS will never catch on, right?

As I’ve said before and will say again, if you want a sure-fire way to get in tax trouble, withhold payroll taxes and don’t remit them to the IRS. I guarantee it will be investigated and you will get in trouble. Agim Zendeli apparently didn’t read my prior posts on this subject.

Mr. Zendeli operated the Ziggies chain of restaurants in Missouri. Mr. Zendeli, liked the good life; for eleven years (from 2004 to 2014), he used the restaurants as a piggy bank for his personal life.

During this period, Zendeli lived a lavish lifestyle, and spent substantial sums on vacations, gambling trips, entertainment and luxury vehicles, including three BMWs, two Cadillac Escalades, two Infiniti QX56s, a 2009 Mercedes, a 2008 Acura and a 2004 Land Rover.

That was done by not remitting the payroll taxes. His scheme was what I noted in my first paragraph.

In order to avoid IRS collection of past due employment taxes, Zendeli repeatedly formed new entities to continue restaurant operations. Once each company accumulated a large tax debt to the IRS, Zendeli ceased operating under that company’s name and opened a new entity, often in the name of a family member, partner, or employee. Zendeli, however, maintained custody and control of the businesses.

Mr. Zendeli also tried to deceive the bankruptcy court; that didn’t work:

In addition, Zendeli attempted to avoid payment of approximately $654,260 in past due federal and state employment taxes by filing bankruptcy on March 26, 2010. Prior to the bankruptcy, Zendeli divorced his wife and transferred the trademarked name “Ziggies®” to his father, for a token payment. (Funds from the 2011 sale of trade name “Ziggies®” were remitted through Zendeli’s bankruptcy proceedings, after the trustee determined a fraudulent transfer of assets had occurred.)

In the end, Mr. Zendeli pled guilty to failing to remit $1.3 million in federal payroll tax. He’s agreed to make restitution; he’s also facing up to five years at ClubFed.

As a helpful hint to any business owners who think this scheme will work: It won’t. But I’ve been reporting on these schemes for nearly 11 years, and I suspect if I keep this blog going another 11 years I’ll still be able to note these. It’s so much easier to simply pay your taxes and live a less lavish lifestyle…but that doesn’t occur to the Bozo contingent.

Nick’s Famous Roast Beef is in Beverly, Massachusetts. You can get a roast beef sandwich for $4.50 to $6.95, definitely a reasonable price. The Department of Justice is alleging that one reason the prices are low is that the owners skimmed $6 million from the business to lower their taxes. The owners of the business and the son of one of the owners have been charged with tax evasion.

Nick’s only takes cash, and the owners are alleged to have done a variation of the two sets of books idea: two sets of cash register tapes.

The indictment alleges that Eleni Koudanis had primary responsibility for the book-keeping functions of the business, and also recruited employees, including her son Steven Koudanis, to create false cash register receipts to use in connection with an IRS tax audit of Nick’s Famous Roast Beef. The true cash register receipts were allegedly destroyed and not provided to the tax preparer who prepared the business and personal tax returns.

Nicholas Koduanis, Nicholas Markos, and Eleni Koudanis were each charged with one count of conspiracy to defraud the US by obstructing the IRS and ten counts of aiding and assisting in the filing of false tax returns. If convicted, they are looking at spending some time at ClubFed.

Back in October 2014, Ronald and Dorothea Joling were convicted of tax evasion. As the US Department of Justice noted in the press release,

Evidence at trial detailed the Jolings’ illegal efforts over close to twenty years to keep the IRS and the Oregon Department of Revenue from collecting almost $2 million they owed in back taxes, penalties and interest. The Jolings’ efforts to thwart the IRS included their use of sham trusts, a corporation, sole bank accounts in the names of nominees, a warehouse bank, bogus money orders, bills of exchange, bonds, and filing false tax returns with the IRS. When those efforts failed, the Jolings resorted to intimidation tactics and threats. Witnesses testified that in response to attempts to collect taxes owed, the Jolings threatened them with arrest, criminal prosecution and lawsuits. In one instance, the Jolings took out a newspaper advertisement in the Coquille Valley Sentinel accusing a local government employee of malfeasance just for performing her job. The Jolings also filed retaliatory bogus liens against federal judges, the federal court clerk’s office, and federal prosecutors who were involved in the criminal case.

That’s bad enough, and US Attorney for the District of Oregon is absolutely right in stating, “When people like the Jolings refuse to pay their fair share, and then threaten, harass, and file liens against people who are just trying to do their jobs, my office will aggressively prosecute them and work with the IRS to hold them accountable.” But that’s just the first part of the story.

They were due to be sentenced this past April. However, they decided that retiring to Clarkdale, Arizona was a better choice than being sentenced for their crimes in Eugene, Oregon. The US Marshals Service caught them in Clarkdale.

Not only are the Jolings likely to face lengthy terms at ClubFed for their convictions on tax crimes (prosecutors were going to recommend ten years for Mr. Joling and five years for Mrs. Joling), they still face charges related to allegedly filing retaliatory liens.

The Jolings apparently believe they are sovereign citizens immune to federal taxation. Mr. Joling wanted to be on “biblical safe ground” (he was a pastor) so he didn’t pay taxes.

I’m sure the sentencing judge (Judge Ann Aiken who also presided over their first trial) will be impressed by their six month vacation and being subject to one of the alleged retaliatory liens. A helpful hint to anyone thinking of repeating the Jolings’ strategy: Just pay your taxes, and if you ever have a court date show up.