Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

California Employment Tax Prosecution - Hotel renovations company under fire for exploiting its workers

Employment tax violations are often accompanied by a host of other charges. Nathan and Sarah Moore of NRM Renovations, Inc. (NRM) got a taste of this when 11 felony charges were filed against them, including payroll tax fraud, workers’ compensation fraud, grand theft of labor, and other related labor code and insurance law violations charges.

The Trigger

Nathan and Sarah Moore’s construction company was initially investigated in June 2015 by the U.S. Department of Labor and the state Department of Industrial Relations following numerous complaints for NRM’s failure to pay its workers adequate wages for doing hotel renovations. The complaints were forwarded to the District Attorney’s office, which initiated a thorough investigation of suspected labor violations with the California Department of Industrial Relations, California Department of Insurance, and Employment and Development Department.

Multiple Charges

In addition to owing more than $30,000 in back wages to employees, the Moores were found to have also underpaid workers’ compensation insurance premiums (to the tune of around $250,000) and owed payroll taxes on one million dollars’ worth of wages. Charges were brought against them for:

  • Grand Theft of Labor, under Penal Code §487 (for taking, without compensation, the labor or property of another valued at more than $950)
  • Workers’ Compensation Fraud, under Insurance Code §11760(a) and Insurance Code §11880(a) (for making fraudulent statements material to the determination of workers’ compensation insurance premiums)
  • Unemployment Insurance (UI) Code Violations, under §2108 (for willful failure to pay unemployment and disability insurance contributions), §2177.5 (for willful failure to file a return) and §2118.5 (for willful failure to account for and pay over taxes)

The Moores were also charged with an Aggravated White Collar Crime Enhancement under Penal Code §186.11(a)(3) (for engaging in a pattern of felony conduct which results in the loss by another person or entity of more than $100,000).

The Authorities Have No Tolerance for Wage Theft

NRM apparently had a good reputation before the employee complaints were made. It was recognized by more than one organization for its excellent construction management and its clientele included the Hilton, Marriott and Wyndam hotel groups. The company had no history of citations or disciplinary actions since it received its contracting license in 2012. However, once the wage complaints were made and the multi-agency investigation commenced, the charges were swift and harsh.

Financial Crimes Defense

The attorneys at Moskowitz, LLP provide top quality criminal and civil representation before the Department of Justice, State of California, and regulatory agencies. In addition to providing aggressive defense services, our extensive experience enables us to advise our clients on how to prevent white collar financial crimes from developing in the first place. Call us today for a consultation.

Pittsburgh Tax Attorney Convicted of Employment Tax Fraud

In our November 2015, five-part series on employment taxes and worker classifications, we addressed the importance of compliance with employment tax laws and the severe repercussions facing those who treat funds meant to be paid over to the government as their own.

Steven Lynch certainly should have known better. The Pittsburgh Tax Attorney and owner/manager of a Pennsylvania Iceoplex was recently convicted for failing to collect and pay over to the IRS more than $790,000 in payroll taxes that had been withheld from his employees’ wages from 2012 through 2015. Lynch established a variety of companies in the course of his Iceoplex operations, including:

  1. 1. Iceoplex at Southpointe, LLC, which operated the ice rink and indoor field;
  2. Body Tech at Southpointe, LLC, which managed the health club; and
  3. Jay’s Sports Bar and Restaurant, Inc., which managed the sports bar at the complex.

He also controlled a residential real estate management company that went under a variety of names, including ASMC Investment, LLC.

Actions that led to Lynch’s prosecution

Lynch apparently had a history of being delinquent in paying employment taxes. His indictment states that from 2004 through 2006, Lynch had been issued a series of notices of tax liens and notices of intent to levy his companies’ bank accounts. In 2008, he renamed Body Tech at Southpointe, LLC as SRA Services, LLC, which was held as a shell company that managed only one or two bank accounts and nothing more. At that time, he also designated SRA Services as the new employer of everyone employed at the three Iceoplex companies and of ASMC.

Approximately two years later, Lynch formed a new company, SRA Employee Services, LLC. This was another shell company which, soon after formation, was designated the new employer of the Iceoplex companies’ employees, as well as of the employees of ASMC and SRA Services. From 2011 through 2013, Lynch failed to pay over employment taxes for his employees through SRA Employee Services. In or around January 2014, Lynch then moved all the employees back to the Iceoplex companies and ASMC, which properly filed and remitted all employment tax forms and payments for a few months. From April 2014 through April 2015, Lynch again failed to timely pay over employment taxes for ASMC and the Iceoplex businesses.

Charges and conviction

Lynch’s strategy of establishing layer upon layer of separate corporate vehicles, along with his history of employment tax delinquency, led to charges for:

Lynch was convicted on September 8, 2016 on 16 counts under 26 U.S. Code § 7202 (he was found not guilty of the obstruction charges). He faces up to 80 years’ imprisonment (5 years for each count), a period of supervised release, and monetary penalties. Sentencing is scheduled for January 11, 2017.

Criminal tax defense attorneys in San Francisco

The IRS and DOJ have become increasingly aggressive in their examinations of possible employment tax noncompliance. If you are under investigation, or merely seek advice on how to ensure that you are handling your business tax issues properly, contact the tax law firm of Moskowitz, LLP.