Five Orlando Residents Indicted For Scheme To Facilitate Evasion Of Payroll Taxes And Workers’ Compensation Requirements In Construction Industry

Posted by National Alliance for Fair Contracting on

U.S. Attorney’s Office, Middle District of Florida
Thursday, October 24, 2024

Jacksonville, Florida – United States Attorney Roger B. Handberg announces the return of two indictments charging Eduardo Anibal Escobar (44), Carlos Alberto Rodriguez (45), Adelmy Tejada (56), Rene Mauricio Escobar (53), and Juana Nelida Escobar (45), all residents of Orlando, with conspiracy to commit wire fraud and conspiracy to commit tax fraud. Each wire fraud count carries a maximum penalty of 20 years in federal prison and each tax fraud count carries a maximum penalty of 5 years in prison. The indictments also notify the defendants that the United States intends to seek forfeiture of a total of at least $19 million as well as five residential properties located in Orlando, which are proceeds of the alleged wire fraud offenses.

According to the indictment, the defendants established companies that purported to supply labor for construction contractors. Florida law requires any business that engages in construction work to secure and maintain workers’ compensation insurance. The defendants applied for workers’ compensation insurance policies to cover a few employees and a minimal payroll. The defendants then entered into agreements with construction work crews, often consisting of undocumented aliens, pursuant to which the defendants submitted paperwork to construction contractors to obtain work for the work crews, falsely representing that the workers were the companies’ employees. The workers then performed construction work under the supervision and direction of the contractors.

The contractors wrote payroll checks to the defendants’ companies for this work and provided the checks to work crew leaders. The checks were deposited into bank accounts in the name of the defendants’ companies and the defendants withdrew cash, and sometimes wrote checks, for the workers’ pay and provided the cash and checks to the work crew leaders. However, before turning over the payroll, the defendants deducted a 6% to 8% fee for their services. The funneling of payroll from the contractors to the work crews in this way allowed the contractors and the work crews to disclaim responsibility for ensuring that required payroll taxes were paid, that adequate workers’ compensation insurance was provided, and that the workers were legally authorized to work in the United States.

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INSIGHT: Employment Tax Fraud in Construction-How to Avoid Accidentally Crossing the Line

Posted by National Alliance for Fair Contracting on

Sept. 13, 2019, 9:01 AM

Tax fraud in the construction industry has caught the attention of federal and state tax authorities across the nation. Recently, a Long Island construction business owner failed to pay nearly $1 million in payroll tax withholdings and now faces a maximum five year prison sentence.

Although most employers do not intentionally break the law, employment tax compliance is often a focus for tax authorities, and in addition to incarceration of responsible persons, construction companies can face thousands of dollars in penalties for failure to comply with tax laws. Construction businesses can reduce the risk of an audit by understanding employment tax rules and avoiding common pitfalls.

Employment Tax Basics

Construction companies, like most businesses, are generally required to withhold from their employees’ paychecks and pay to the IRS federal employment taxes. The term “employment taxes” generally is used by the IRS to refer to:

  • Amounts withheld from employees’ paychecks for federal income taxes;
  • Amounts withheld from employees’ paychecks for Federal Insurance Contribution Act (FICA) taxes, which are Social Security and Medicare taxes that are matched by amounts employers are required to contribute for Social Security and Medicare; and
  • Federal Unemployment Tax Act (FUTA) taxes, which are taxes paid by employers into workers’ compensation and unemployment funds.

These taxes are commonly referred to as “trust fund” taxes because the money withheld is being held in trust by the employer for the benefit of government. Employers generally must electronically deposit theses taxes with the IRS either monthly or semiweekly and file a Form 941 or 944. The IRS’s employment tax rules can be found in IRS Publication 15. State employment tax laws vary by jurisdiction and construction companies should consider any local laws as well

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Standing up to tax fraud in the construction business (MA)

Posted by National Alliance for Fair Contracting on

May 29, 2019
By Steve Joyce
Special to the Reporter

Today, one in five contractors in the construction industry commits tax fraud, resulting in $2.6 billion is lost in federal and state income. That’s why it’s more urgent than ever to combat construction industry tax fraud, an unjust and immoral affront to the people of Massachusetts.

Construction tax fraud often manifests itself through dishonest bookkeeping and worker exploitation. Approximately 1.2 million workers are paid ‘off the books’ in the US annually. Without employment records to hold them accountable, contractors have been known to minimize or steal wages at the completion of a job.

And when a contractor does bother to go through the with paperwork, they frequently misclassify workers as “independent contractors.” The workers do the same job as a fulltime employee, but shoulder tax obligations that the employer should be paying. Nearly 300,000 construction workers are misclassified in this manner each year.

These practices allow contractors to sidestep jobsite safety, skirt around workers compensation premiums, and skip out on payroll taxes and critical benefits like Social Security, overtime, unemployment, and retirement.

In Massachusetts, denied payments and overtime to workers and minimum wage violations cost employees $700 millionannually. In a 2018 fair labor report, the Massachusetts attorney general reported restitution and penalties of $9.6 million as a result of wage theft, worker misclassification, and exploitation of young workers. Construction alone resulted in 61 citations, and generated $1.5 million in restitution and penalties.

Honest employers pay the price of these schemes, too. When shady contractors illegally skip taxes and shortchange workers, the prices they offer look like a 30% savings on labor costs. Businesses that do their work by the book, follow the rules, and pay their fair share of taxes can’t bid competitively with artificially low prices in the marketplace. Cheap, cheating contractors are just like a bag of chips that costs a dollar less but is twice as full of air.

In Massachusetts, recent estimates show that $16.5 million is recovered annually in lost payroll taxes and unemployment insurance. Funds like these contribute to tax pools that eventually help pay for things like public services, meaning when taxes go unpaid, the public is cheated. Workers, business owners, and the people of our state lose out when funding for schools, roads, bridges, first responders, veterans, and Medicaid and Social Security are harmed.

…

Steve Joyce is the political director of NERCC and a member of Carpenters Local 327. For more information on the New England Council of Carpenters, visit nercc.org or stoptaxfraud.net.

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Colorado passes law making wage theft a felony (CO)

Posted by National Alliance for Fair Contracting on

Author – Kim Slowey
Updated – May 17, 2019

UPDATE: May 17, 2019: Colorado Gov. Jared Polis on May 16, signed The Human Right to Work With Dignity Act (HB-1267) into law, reclassifying intentional nonpayment of more than $2,000 of wages a felony theft.

“Unscrupulous employers who purposefully withhold wages or underpay workers hurt the economy by undercutting good employers’ bids, engaging in tax fraud and denying workers fair compensation,” said one of the Act’s sponsors, Rep. Meg Froelich.

The new law takes effect Jan. 1, 2020.

Dive Brief:

  • The Colorado General Assembly’s House Judiciary Committee approved a proposed wage theft bill that would make intentional underpayment of certain wages a criminal offense.
  • In Colorado it is a misdemeanor to willfully short employees on their paychecks, but the new measure would make it a felony theft to intentionally underpay them by $2,000 or more. The bill includes migratory and foreign workers under the definition of employee.
  • One of the bill’s stated intentions is to provide an additional vehicle for state law enforcement to fight labor trafficking by recognizing labor as a thing of value that is subject to theft. According to the General Assembly, labor trafficking each year costs Colorado workers hundreds of millions of dollars and the loss of tens of millions of dollars to the state.

Dive Insight:

According to the Colorado Fiscal Institute, more than 500,0000 workers in the state – many of them in the construction industry – lose $750 million a year because of wage theft. The institute’s analysis shows that the most common methods employers use to short employees on their pay are:

  • Nonpayment, which includes late payments and not paying employees what they’ve earned.
  • Underpayment.
  • Misclassification of employees as independent contractors in order to avoid having to pay benefits.
  • Unauthorized payroll deductions for expenses like transportation, materials and tools.

There has been a push by some states and cities to address wage theft and misclassification of workers as independent contractors. In California, lawmakers are considering codifying a state Supreme Court ruling that sets the parameters of which workers qualify as independent contractors. The “ABC” test asks whether the person claiming to be an independent contractor is free from the control and direction of the employer; performs work that the hiring employer doesn’t typically do; and engages in the work as part of a business.

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Springfield can be the first to end construction tax fraud [Guest viewpoint] (MA)

Posted by National Alliance for Fair Contracting on

Posted May 6, 12:46 PM
By Tim Craw

I’m proud to work in Springfield. The people here are tough, hardworking, and innovative. It’s no surprise that the city is known as ‘The City of Firsts.’

Now, Springfield has the chance to be the first city to stop the epidemic tax fraud taking place in the construction industry. Criminal contractors are cheating the public, honest businesses, and local workers by neglecting to pay their fair share of employment and payroll taxes. It costs the American people $80 every second, and up to $2.6 billion a year in lost federal and state income.

Tax fraud is often committed through underhanded bookkeeping and worker exploitation. Frequently, developers and contractors will use labor brokers to do the dirty work of hiring employees off the record. Approximately 1.2 million workers are paid ‘off the books’ each year in the U.S., allowing contractors to avoid rules around safe jobs sites, deny benefits and workers compensation, skip out on payroll taxes, and even withhold or minimize workers’ payments. Other times a contractor might use ‘on the books’ methods, but cheat by requiring the worker to carry tax and other employment obligations. Nearly 300,000 construction workers are misclassified as ‘independent contractors,’ even though they work a full-time employee’s job.

In Massachusetts, illegal practices like these, particularly wage theft, denied overtime, and minimum wage violations, result in $700 million in losses to employees annually. The Massachusetts Attorney General reported in a 2018 fair labor report that wage theft, worker misclassification, and exploitation of young workers resulted in restitution and penalties of $9.6 million.

The contractors who skip taxes and shortchange workers can gain up to a 30% savings on labor costs, putting honest employers at a disadvantage. They do business the right way but aren’t able to issue as competitive bids, and are cheated of potential work.

The public is also affected by this problem, because when taxes go unpaid, tax pools receive less funding. Public services such as schools, roads, bridges, first responders, and Medicaid and Social Security suffer. The Massachusetts Joint Enforcement Task Force on the Underground Economy and Employee Misclassification reported that in 2014 alone, $16.5 million was recovered in lost payroll taxes and unemployment insurance. The money being pocketed through tax fraud schemes should be helping keep our state safe or close the gap in funding for our schools. These improvements could all be made without creating more debt.

…

Tim Craw is a Council Representative with the New England Council of Carpenters and a member of Local 336.

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Carpenters: Industry plagued by tax fraud (MA)

Posted by National Alliance for Fair Contracting on

Picketers aim illuminate illegal employment practices

By Mike LaBella
April 11, 2019

HAVERHILL – More than a dozen union carpenters, including members of New England Regional Council of Carpenters Local 339, stood at the corner in front of City Hall for several hours Thursday morning to illuminate what they claim is rampant tax fraud tainting the construction industry.

They held picket signs and banners bearing statements such as, “Tax fraud impacts me,” and “Construction industry tax fraud costs taxpayers over $80 per second and $2.6 billion per year.”

Organizers said the event was intended to educate the public on the magnitude of illegal construction employment practices, discuss their impact on Haverhill and Massachusetts, and call for a unified front against what they called an insidious activity. Similar events took place Thursday in Lynn, Framingham and Portland, Maine, they said.

…

Local 339 issued a statement saying that each year, labor brokers and contractors cheat their tax obligations by misclassifying their hires, such as classifying a carpenter as a laborer, and paying an estimated 1.2 million workers “off the books,” (also known as “under the table”), thereby robbing taxpayers of up to $2.6 billion through lost federal income, employment taxes, and state income taxes.

Union member Adam DiGiovanni of Haverhill said he is reaching out to city officials in hopes they will support the creation of an ordinance that would penalize an employer for engaging in unfair wage practices on large construction projects that involve taxpayer money, including projects that receive tax credits.

“Other communities have passed these kinds of ordinances, including Springfield, Quincy and Lynn,” he said. “There needs to be oversight as right now it’s a free for all.”

He said that such an ordinance would typically speak to large-scale commercial construction projects valued at $10 million or more, and typically not the “local home-builder market.”

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Union construction workers protest tax fraud in their industry on Tax Day (WV)

Posted by National Alliance for Fair Contracting on

By Jake Flatley in News
April 15, 2019 at 3:26PM

CHARLESTON, W.Va. – Monday marked Tax Day in the United States so the United Brotherhood of Carpenters in Charleston wanted to make a stand against those who in the construction industry who participate in tax fraud.

Local 439 and Local 436 gathered dozens of construction workers and laborers from around the state to protest the “underground” economy that they say goes on with thousands of independent contractors nationwide.

“We are trying to point out the effect of the underground economy, the payroll fraud, paying in cash, illegal classification of independent contractors,” Scott Brewer with the Keystone Mountain Lake Regional Council of Carpenters (KML) in Charleston said.

“What it does to the communities, to the tax base of the communities, to the states and federal governments and how it harms legitimate companies that play by the rules.”

The protest occurred in front of the United States Post Office location on Lee Street in Charleston and Brewster said it joins in with other events in the Construction Industry Tax Fraud Day of Action.

According to Brewer, around 20-percent of construction work in the United States is done under the table which he says boils down to $66 billion a year is lost in the United States.

“That’s money that is lost to cities like Charleston,” he said. “They don’t get their user fee, their local B&O tax. The state of West Virginia gets no payroll taxes, the federal government gets no payroll taxes like Medicare and Social Security.”

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Pittsburgh creates construction fraud task force (PA)

Posted by National Alliance for Fair Contracting on

By Kim Slowey
Jan. 3, 2019

Dive Brief:

  • This Pittsburgh City Council voted last week to establish the Joint Task Force on Construction Industry Fraud, which will work to identify and combat “unfair trade practices, including tax fraud” among the city’s construction businesses.
  • The resolution takes particular aim at construction companies that commit wage violations that result in underpayment or nonpayment of taxes, as well as too-low pay rates that prevent some workers from being able to support their families. The task force will not focus on the practice of hiring undocumented workers, however.
  • The group will be made up of representatives from the city council; mayor’s office; Pittsburgh Regional Building and Construction Trades Council; Allegheny County District Attorney’s Office; Pennsylvania Department of Labor and Industry; and the city’s Department of Permits, Licenses and Inspections.

Dive Insight:

According to the resolution, construction is the fastest-growing industry in Pittsburgh. It states that fraud-related violations of city ordinances not only threaten the health and safety of residents and workers but “threaten the viability” of businesses that operate legitimately. The group will review existing industry practices in Pittsburgh and then make code and policy recommendations to the council and mayor.

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