It was announced on October 26, 2011 that Michael Powers, former owner of Commonwealth Temporary Services, a temporary employment agency, has been sentenced to seven years in prison in “one of the most egregious tax evasion schemes” the sentencing judge had ever come across.
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The former temp agency apparently ran a $30 million under-the-table payroll scheme and avoided more than $9 million in federal and state payroll taxes and workers’ compensation insurance premiums.
Powers now faces 84 months (7 years) in prison, two years supervised release and owed over $9 million in restitution to the Internal Revenue Service (IRS), Massachusetts Department of Unemployment Assistance and two insurers.
Powers’ accomplice, John Mahan, were both convicted in July of this year for one count of conspiracy to defraud the IRS among other workers’ compensations insurers along with one count of mail fraud and two counts of falsifying tax returns.
For four years between 2000 and 2004 the two men operated Commonwealth Temporary Services, Inc., which supplied hundreds of temporary laborers to businesses throughout Eastern Massachusetts.
Like every other employer, the defendants were required to pay payroll (FICA) taxes and to obtain workers compensation insurance. The amount an employer pays in payroll taxes and workers compensation insurance premiums is largely dependent on the size of their payroll. Powers and Mahan lied to both the IRS and their insurers about the size of their payroll, and paid the majority of their employees in cash to make their fraud more difficult to detect – Source.
To avoid paying employment taxes, such as Social Security and Medicare, and to fraudulently reduce the businesses’ insurance premiums, Powers and Mahan under-reported their payrolls. In order to hide their fraud, they arranged to pay more than $30 million of their payroll in cash, under the table.
John Mahan will be sentenced within the next week on November 3. The sentencing Judge also commented that this scheme was noteworthy for its brazenness and conniving ways – Source.
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