Case Alert: Maryland Business Owner Sentenced for Failing to Pay Employment Taxes

Editor’s Note: we have previously written about the dangers of business owners not paying their employment taxes. The penalties range from personal liability for the payroll taxes under the Trust Fund Recovery Penalty, to criminal indictment and conviction. In the case below, Richard Stewart pled guilty pursuant to a written plea agreement (statement of facts) and was sentenced to two years in prison.

Richard Stewart, a resident of Mitchellville, Md., was sentenced to 24 months in prison and ordered to pay $5,414,647 in restitution to the Internal Revenue Service (IRS) by U.S. District Judge Roger W. Titus for failing to pay over employment taxes in connection with his ownership of Montgomery Mechanical Services, the Justice Department and IRS announced on June 1, 2012.

According to the plea agreement and criminal information, from at least 2003 through 2008, Stewart owned and operated Montgomery Mechanical Services, a company that installed plumbing, heating, and air condition in commercial buildings and that had offices in Baltimore and Capitol Heights, Md. From 2003 through at least 2008, Stewart did not collect, truthfully account for and pay over employment taxes of approximately $3,969,337 from his employees’ wages.

“It is wrong for any business owner to get an unfair competitive advantage by committing tax crimes,” said Assistant Attorney General Kathryn Keneally of the Justice Department’s Tax Division. “The sentence handed down today shows that those who willfully violate their employment tax obligations will not only be prosecuted, but risk severe punishment for their crimes, and they will still be held responsible for the taxes due, together with interest and civil penalties.”

“Business owners have an inescapable obligation to withhold income taxes for employees and remit those taxes to the Internal Revenue Service,” said Richard Weber, Chief, IRS Criminal Investigation. “IRS Criminal Investigation is committed to vigorously pursuing those who violate employment tax laws.”

The restitution order in the amount of $5,414,647 encompasses both the employment taxes that he failed to withhold from his employees and his obligation, as an employer, to pay over a matching portion of Federal Insurance Contributions Act taxes.