On April 28, 2016, Richard Moxley, 67, of Watertown, the owner of Sparkling Windows, (“Sparkling Windows”) a window and gutter cleaning company that maintained its offices at 33 Chapman Street, Watertown pleaded guilty in the United States District Court before Judge Mark L. Wolf to charges that he defrauded A.I.M. Mutual Insurance Company (“A.I.M. Mutual”) of workers’ compensation premiums owed and the Internal Revenue Service (“IRS”) of taxes owed.
Under reporting payroll to A.I.M. Mutual and to the IRS
The heart of Mr. Moxley’s scheme to cheat A.I.M. Mutual and the IRS involved paying workers under the table in order to avoid Social Security, Medicare, as well as withholding taxes along with suppressing payroll to reduce the workers’ compensation premiums owed to A.I.M. Mutual.
Mr. Moxley maintained his hidden payroll by avoiding any use of his business bank account to obtain the cash that Sparkling Windows paid its under-the-table workers. Also, to keep the cash payments separate, Mr. Moxley only reported as its number of workers that Sparkling Windows carried on its books and not the additional workers that the company paid off its books.
Mr. Moxley generated the substantial cash necessary to keep the scheme going by arranging to deliver, on a weekly basis, a number of the checks that Sparkling Windows received from customers to a commercial check cashing business. The check cashing business, for a fee, cashed the checks and delivered cash to Mr. Moxley. Mr. Moxley subsequently used some or all of that cash to fund Sparkling Windows’s unreported cash payroll.
Mr. Moxley hid $2.7 million in paid wages from A.I.M. Mutual and the IRS
For each quarter, beginning in March 2008 and up to September 2011, Mr. Moxley’s deliberate actions caused Sparkling Windows’s tax preparers to file IRS forms that he knew were false and which fraudulently understated Sparkling Windows’s true payroll. None of these forms reported any of the under the table cash payroll Mr. Moxley was paying.
Mr. Moxley also routinely provided incomplete records to the tax return preparation business that prepared the tax returns for Mr. Moxley and Sparkling Windows by providing the tax return preparers with the records of his business bank accounts but concealing the fact that a substantial portion of Sparkling Windows’s business revenues and payroll were not reflected in those bank account records.
Between January 7, 2008 and January 7, 2012, Mr. Moxley paid Sparkling Windows’ off-the-books workers approximately $2,733,799.00 in cash that he had not reported, as required, to A.I.M. Mutual and the IRS.
A.I.M. Mutual given the same fraudulent information as the IRS received
From January 2008 and until January 2012 Sparkling Windows had workers’ compensation insurance provided by A.I.M. Mutual.
Initially, A.I.M. Mutual’s premium factors were based upon employee remuneration for the employees who were covered, the type of work the covered employees routinely performed, and any experience modification based upon the employer’s loss history.
At the beginning of each policy term, Mr. Moxley furnished A.I.M. Mutual the anticipated payroll which would then be used to determine the estimated premium.
At the close of the policy term, A.I.M. Mutual would conduct an audit of the employees’ actual payroll during the policy term, as well as in the event of interim audits. Mr. Moxley was the party who provided the information to the insurance company including tax returns showing the remuneration paid to employees.
Mr. Moxley also had his tax preparers provide information to the insurance auditors from A.I.M. Mutual. Mr. Moxley knew and intended that the information provided to the insurance auditors would reflect only the portion of Sparkling Windows’s payroll that was actually paid through Sparkling Windows’s bank account. None of the cash payroll Mr. Moxley paid his employees was reported to the insurance auditors.
In telephone and face-to-face meeting with the insurance auditors from A.I.M., Mr. Moxley also falsely reported that Sparkling Windows ordinarily employed approximately five employees including himself and his wife. In actuality, however, Mr. Moxley knew that Sparkling Windows routinely employed more than twelve persons.
By fraudulently concealing the number of employees and under-reporting the company’s payroll, Mr. Moxley defrauded A.I.M. Mutual of approximately $64,943.92 in workers’ compensation insurance premiums that should have been owed.
Defrauded IRS of Social Security, Medicare and withholding taxes
Federal tax laws require employers to file Form 941, Employer’s Quarterly Federal Tax Return, with the IRS in order to report and pay federal employment taxes, which consist of Social Security Tax and Medicare Tax, as well as income taxes withheld from employees’ paychecks. Employers must file Form 941 for each quarter ending March 31st; June 30th; September 30th; and December 31st, every year.
The Social Security and Medicare Taxes are mandated by the Federal Insurance Contributions Act (F.I.C.A.), and the amount owed is based on the employee’s wages. Each employee is liable for one-half of the F.I.C.A. taxes and the employer is liable for the other half. Employers also are required by federal law to withhold employees’ share of the F.I.C.A. taxes. In connection with the filing of their Forms 941, employers must report total payments to employees and report and pay to the IRS both the employers’ and the employees’ share of the F.I.C.A. taxes.
Employers, like Mr. Moxley, are required to withhold income taxes from their employees’ wages to be credited toward their employees’ income tax obligations. These withholdings, too, are shown on Form 941, and are required to be delivered to the IRS quarterly.
On an annual basis, employers are also required to file Forms W-2 for each of their employees. On the W-2, the employer reports to each employee and to the IRS all wages paid to the employee and all taxes that have been withheld from those wages.
Mr. Moxley’s scheme not only defrauded the IRS of the one-half of the Social Security and Medicare Taxes that Sparkling Windows paid for its employees. As a result of the money that Sparkling Windows did not report or pay to the IRS, the employees being paid under the table in cash did not pay the Social Security and Medicare Taxes they owed. Additionally, Since Sparkling Windows did not report the case wages, these employees had no withholding for taxes and received no W-2’s evidencing their wages.
According to the Information to which Mr. Moxley pleaded guilty, his fraudulent actions cost taxpayers slightly more than $875,000 in taxes not paid to the IRS.
Tax evasion and mail fraud carry sentences of up to five years and up to twenty years, respectively.
Mr. Moxley pleaded guilty to two counts detailed in an Information filed by the United States Attorney. That Information charged him with mail fraud under 18 U.S.C. §1341, defrauding workers’ compensation insurers and also one count of tax evasion under 26 U.S.C. §17201.
The charge of tax evasion provides for a sentence of no greater than five years in prison plus 3 years of supervised release along with a fine of $250,000.00 or twice the gross gain or loss whichever is greater. In this case the potential fine would be double the $875,000 the IRS lost.
The charge of mail fraud, however, provides for a sentence of up to 20 years in prison with 3 years of supervised release and a fine of $250,000.00 or twice the gross gain or loss whichever is greater. In this case, the fine for Mr. Moxley’s insurance fraud would be the $250,000.00 maximum since the lost premium even when doubled totals less than $250,000.
United States will seek forfeiture of property
Additionally, in the Information to which Mr. Moxley pleaded guilty, the United States Attorney has filed for forfeiture of all of the property real or personal that “constitutes, or is derived from proceeds traceable to the commission of the offense.”
Upon sentencing, the United States District Court will ordinarily enter a judgment of forfeiture for the amount of the illegal proceeds received by the defendant. This judgment leads to an order of execution for levies against any property owned by the defendant.
Sentencing scheduled for August 17, 2016
The United States Judge hearing the case, Mark L. Wolf, has entered an order for the sentencing of Mr. Moxley to be heard on August 17, 2016.
Agency Checklists will publish an update upon receiving information regarding the sentencing in this case and any orders of restitution to A.I.M. Mutual.