Cashing in on Fraud

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.

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