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As I’ve discussed in previous posts, the IRS isn’t the only one prosecuting tax charges. On July 20, 2016, the District Attorney’s Office for the County of Santa Barbara issued the following press release on a recently filed plea to tax charges:
District Attorney Joyce E. Dudley announced today that Alberto Rodriguez, 59 years old, of Santa Barbara, California, entered a plea to three felony counts and one misdemeanor count in Department 11 of the Santa Barbara Superior Court. Rodriguez’s plea was to one felony count of Tax Fraud for filing a fraudulent tax return under Revenue and Taxation Code section 19705(a)(l); one felony count of Workers’ Compensation Insurance Fraud under Insurance Code section 1871.4; one felony count of Supplying False or Fraudulent Payroll Documentation under Unemployment Insurance Code section 2117 .5; and one misdemeanor count of Labor Code section 1779.
The investigation into Rodriguez and his business, United Seal Coating and Slurry Seal, Inc., began in September of 2013 and was conducted by detectives from the California Department of Insurance along with investigators from the Santa Barbara County District Attorney’s Office. At the time, Rodriguez was performing numerous Public Works contracts for the University of California, Santa Barbara. One of his workers was injured on the job and filed a workers’ compensation claim. Rodriguez denied that the worker was his employee, which was later determined to be false. The investigation into the workers’ compensation fraud charges led investigators to other criminal conduct by Rodriguez and his business.
Rodriguez will be sentenced on January 18, 2017, when it is expected he will be sentenced to one year in county jail and be ordered to pay restitution to the Employment Development Department in the amount of$65,164.06; The Franchise Tax Board, $24,298; State Compensation Insurance Fund, $77,114.48; and FirstComp Insurance, $2,496.54, for a total of $169,073.08.
The State of California prosecutes tax charges less frequently than the Federal government. They can also be different than Federal cases in a few respects. First, I have seen first hand that competent tax representation of defendants in state cases is perhaps even more critical than in Federal cases. Judges and prosecutors in local and state cases are less familiar with the unique aspects of tax cases, including making sure the numbers make sense. As a former federal tax prosecutor and IRS attorney, I can provide valuable insights and educate the court and the government. In addition, like in this case, the state cases can involve the EDD and insurance companies, in addition to income tax issues.
Some businesses take a shortcut with respect to employees by paying them under the table. Some employees may even prefer this, but the government dislikes an underground economy. Businesses paying employees under the table, because they don’t report the employee, often make the mistake of simply omitting the cash income from their returns when the income was used to pay off the book expenses. While this may seem to be zero-sum at a very superficial level, it avoids employment/unemployment taxes, 1099 or W-2 reporting requirements, and, on the state side, unemployment and worker’s compensation contributions. In addition, the government will not appreciate the facilitation of a cash economy for the business’ employees, who may be avoiding taxes without the check of the 1099 or W-2. This recent Santa Barbara case highlights the state and local government’s seriousness about these issues.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.