Civil and criminal
employment tax enforcement is among the Tax Division's highest priorities.
Employers have a legal
responsibility to collect and pay over to the Internal Revenue
Service (IRS) taxes withheld from their employees’ wages. These employment
taxes include withheld federal income tax, as well as the employees’
share of social security and Medicare taxes (collectively known as FICA taxes).
Employers also have an independent responsibility to pay the employer’s share
of FICA taxes.
When employers
willfully fail to collect, account for and deposit with the IRS employment tax
due, they are stealing from their employees and ultimately, the United States
Treasury. In addition, employers who willfully fail to comply with their
obligations and unlawfully line their own pockets with amounts withheld are
gaining an unfair advantage over their honest competitors.
The Tax Division
pursues civil litigation to enjoin employers who fail to comply with their
employment tax obligations and to collect outstanding amounts assessed against
entities and responsible persons. The Tax Division also pursues criminal
investigations and prosecutions against those individuals and entities who
willfully fail to comply with their employment tax responsibilities, as well as
those who aid and assist them in failing to meet those responsibilities.
Unpaid employment
taxes are a substantial problem. Amounts withheld from employee wages represent
nearly 70% of all revenue collected by the IRS and, as of June 30, 2016, more
than $59.4 billion of tax reported on Employer’s Quarterly Federal Tax Returns
(Forms 941) remained unpaid. When last measured, employment tax violations
represented more than $91 billion of the gross Tax Gap and, after collection
efforts, $79 billion of the net Tax Gap in this country.
The Tax Division
works with its partners in the IRS and the Offices of U.S. Attorneys to seek
money judgments, permanent injunctions, and criminal convictions that often
carry substantial prison sentences, restitution and financial penalties.
Examples of recent IRS employment tax fraud investigations are found here.
These cases are sending the clear message that this conduct will not be
tolerated, and the Tax Division remains committed to addressing this serious
issue.
Employment Tax Evasion Schemes
Employment tax evasion schemes can take a
variety of forms. Some of the more prevalent methods of evasion include
pyramiding, employee leasing, paying employees in cash, filing false payroll
tax returns or failing to file payroll tax returns.
Pyramiding
"Pyramiding" of employment taxes is a
fraudulent practice where a business withholds taxes from its employees but
intentionally fails to remit them to the IRS. Businesses involved in pyramiding
frequently file for bankruptcy to discharge the liabilities accrued and then
start a new business under a different name and begin a new scheme.
Employment Leasing
Employee leasing is another legal business
practice, which is sometimes subject to abuse. Employee leasing is the practice
of contracting with outside businesses to handle all administrative, personnel,
and payroll concerns for employees. In some instances, employee-leasing
companies fail to pay over to the IRS any portion of the collected employment
taxes. These taxes are often spent by the owners on business or personal
expenses. Often the company dissolves, leaving millions in employment taxes
unpaid.
Paying Employees in Cash
Paying employees, whole or partially, in cash
is a common method of evading income and employment taxes resulting in lost tax
revenue to the government and the loss or reduction of future social security
or Medicare benefits for the employee.
Filing False Payroll Tax Returns or Failing to
File Payroll Tax Returns
Preparing false payroll tax returns
understating the amount of wages on which taxes are owed, or failing to file
employment tax returns are methods commonly used to evade employment taxes.
BREAKING NEWS
(Prof should have hired Selig & Associates)
Former University Business Professor
sentenced to Prison for Hiding over $220 Million in Offshore Banks
Evaded More than $18 Million in Federal and
State Taxes over 15 years
A now retired
business school professor, who amassed a $220 million fortune in secret foreign
accounts, was sentenced to seven months in prison today for conspiring to defraud
the United States and to submit a false expatriation statement to the Internal
Revenue Service (IRS), announced Acting Deputy Assistant Attorney General
Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney
Dana J. Boente for the Eastern District of Virginia. He also has been assessed
and paid a $100 million civil penalty for his concealment of these accounts.
“For 15 years, Dan
Horsky stashed assets and hid income offshore in secret bank accounts,” said
Acting Deputy Assistant Attorney General Goldberg. “That scheme came to an
abrupt end when IRS special agents came knocking on his door. The days of
hiding behind shell corporations and foreign bank secrecy laws are over. Now is
the time for accountholders to come in, accept responsibility, and help ensure
that the lawyers, financial advisers and other professionals who actively
facilitated offshore evasion also are held accountable.”
“Hiding assets and
creating secret accounts in an attempt to evade income taxes is a losing game,”
said U.S. Attorney Boente. “Horsky went to great lengths to hide assets
overseas in order to avoid paying his share of taxes to the IRS. Today’s
sentence shows that we will continue to prosecute bankers and U.S. citizens who
engage in this criminal activity. I want to thank IRS-Criminal Investigation
and our prosecutors for their work on this important case.”
“Mr. Horsky’s
criminal actions to evade his federal income tax obligations were particularly
flagrant and unacceptable,” said Chief Richard Weber of IRS Criminal
Investigation (CI). “Together with our law enforcement partners, IRS-CI will
continue to unravel complex financial transactions and hold those accountable
who hide assets offshore and dodge the tax system. IRS-CI special agents are the
best financial investigators and we will continue to follow the money trail
wherever it may lead.”
According to
documents filed with the court and statements made during the sentencing
hearing, Dan Horsky, 71, formerly of Rochester, New York, is a citizen of the
United States, the United Kingdom and Israel who served for more than 30 years
as a professor of business administration at a university located in New York.
Beginning in approximately 1995, Horsky invested in numerous start-up
companies, virtually all of which failed. One investment in a business referred
to as Company A, however, succeeded spectacularly. In 2000, Horsky transferred
his investments into a nominee account in the name of “Horsky Holdings” at an
offshore bank in Zurich, Switzerland (the “Swiss Bank”) to conceal his
financial transactions and accounts from the IRS and the U.S. Treasury
Department.
In 2008, Horsky
received approximately $80 million in proceeds from selling Company A’s stock.
Horsky filed a fraudulent 2008 tax return that underreported his income by more
than $40 million and disclosed only approximately $7 million of his gain from
the sale. The Swiss Bank opened multiple accounts for Horsky to assist him in
concealing his assets: including one small account for which Horsky admitted
that he was a U.S. citizen and resident and another much larger account for
which he claimed he was an Israeli citizen and resident. Horsky took some of
his gains from selling Company A’s stock and invested in Company B’s stock. By
2015, Horsky’s offshore holdings hidden from the IRS exceeded $220 million.
Horsky directed the
activities in his Horsky Holdings’ account and the other accounts he maintained
at the Swiss Bank, despite the fact that he made no effort to conceal that he
was a U.S. resident. In 2012, Horsky arranged for an individual referred to as
Person A to take nominal control over his accounts at the Swiss Bank because
the bank was closing accounts controlled by U.S. persons. The Swiss Bank later
helped Person A relinquish that individual’s U.S. citizenship, in part to
ensure that Horsky’s control over the offshore accounts would not be reported to
the IRS. In 2014, Person A filed a false Form 8854 (Initial Annual Expatriation
Statement) with the IRS that failed to disclose his net worth on the date of
expatriation, failed to disclose his ownership of foreign assets, and falsely
certified under penalties of perjury that he was in compliance with his tax
obligations for the five preceding tax years.
Horsky’s tax evasion
scheme ended in 2015 when IRS special agents confronted him at home regarding
his concealment of his foreign financial accounts.
Horsky willfully
filed fraudulent federal income tax returns that failed to report his income
from, and beneficial interest in and control over, his foreign financial
accounts. In addition, Horsky failed to file Reports of Foreign Bank and
Financial Accounts (FBARs) up and through 2011, and also filed fraudulent 2012
and 2013 FBARs. In total, in a 15-year tax evasion scheme, Horsky evaded more
than $18 million in income and gift tax liabilities.
In addition to the
term of prison imposed, Horsky was ordered to serve one year of supervised
release and to pay a fine of $250,000. As part of his plea agreement, Horsky
also paid a penalty of $100 million dollars to the U.S. Treasury for failing to
file, and filing false, FBARs and paid over $13 million in taxes owed to the
IRS.
Acting Deputy
Assistant Attorney General Stuart M. Goldberg and U.S. Attorney Boente
commended special agents of IRS-Criminal Investigation, who conducted the
investigation, and Senior Litigation Counsel Mark F. Daly and Trial Attorney Robert
J. Boudreau of the Tax Division and Assistant U.S. Attorney Mark Lytle of the
Eastern District of Virginia, who are prosecuting this case.
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