On August 12, 2020, the United States Attorney for Massachusetts filed tax fraud charges against Adam Haddad, 43, of Shrewsbury, the owner of ADH Collision of Boston in Everett d/b/a Accurate Collision and Accurate Collision, Inc., a body shop formerly located in Worcester.
Mr. Haddad and his two corporations are presently under indictment for insurance fraud relating to enhancing damages to insured vehicles, and not completing work insurance companies had hired his shops to complete. See Agency Checklists’ article of April 2, 2019, “Accurate Collision Auto Repair Shops & Owner Indicted On 75 Counts For Defrauding 11 Insurers Of $170,000.”
Agreement to plead guilty to three-count information alleging payroll tax fraud
The federal charges against Mr. Haddad arise out of his payroll practices in his Worcester auto body shop, Accurate Collision, where he was paying substantial sums under the table in cash and avoiding the payment of employment-related federal taxes.
In announcing the charges against Mr. Haddad, the United States Attorney stated that Mr. Haddad had agreed to plead guilty to the three-count information filed against him alleging that he fraudulently had Accurate Collision file false employment tax returns.
Federal Employment Taxes that Mr. Haddad had his body shop avoid
Federal law requires employers to collect and pay over employment taxes, including (a) income taxes withheld from employee wages and (b) FICA, or Federal Insurance Contributions Act taxes. The FICA withholdings include Social Security and Medicare taxes.
Under the law, the employee and the employer should split the FICA taxes. The employer withholds one-half of the applicable FICA taxes from the employee’s wages and then remits the other half of the FICA taxes from the employer’s funds to pay the IRS the full amount due.
To account for these employment-related tax payments, employers must file an Employer’s Quarterly Federal Tax Return (Form 941) quarterly, reporting all the wages paid to employees and all federal employment taxes on those wages.
The information filed against Mr. Haddad alleges that on and after March 31, 2015, and up to June 30, 2017, Accurate Collision under his control and direction, made cash withdrawals from its bank account to pay employee’s “under the table,” to avoid paying payroll taxes.
Mr. Haddad’s cash payroll scheme avoids $292,231 in withholding and FICA taxes
The information alleges that after paying employees in cash, Mr. Haddad caused Accurate Collision to file quarterly Form 941s with the IRS that he knew were materially false in under-reporting the employees’ wages and the employment taxes due.
Over the course of the nine fraudulent 941 returns submitted to the IRS by Accurate Collision, the employment-related taxes amounted to $292,231, as shown the following chart from the information:
Court dates on Mr. Haddad’s pending federal and state charges
On the federal tax charges, as of the publication of this article, no date appears on the federal court’s docket scheduling Mr. Haddad’s guilty plea.
On the pending state insurance fraud indictments against Mr. Haddad, the Superior Court has scheduled the final pretrial conference for December 18, 2020, and the trial of the indictments for January 11, 2021.
The state indictments involve allegations that for four years, Mr. Haddad regularly enhanced damage and caused new damage to customer’s vehicles to falsely inflate insurance appraisal quotes for labor, paint, and parts. The charges also involve claims that Mr. Haddad would make an additional profit by pocketing the insurance company’s check and not completing all the necessary repairs to his customers’ cars.
Penalties for aiding and abetting the filing of false tax return
Under Title 26, § 7206(2) of the United States Code, each count of aiding the preparation of false tax returns is a felony that the judge can punish with up to three years in prison and three years of supervised release. Also, the sentence on each may include a fine of up to $250,000, or twice the gross gain or loss to the United States, whichever is greater.
However, federal district court judges must impose criminal sentences based upon the U.S. Sentencing Guidelines and other statutory factors.
The sentence in a recent similar tax evasion case involving another body shop
The details of how the federal sentencing guidelines will apply to Mr. Haddad’s in his tax case are not clear. However, Agency Checklists notes that in a similar tax fraud plea in February 2020, the owner of a Hyde Park auto body shop was sentenced in federal court in Boston for aiding in the submission of false tax returns in connection with preparing false tax returns for his company, Automotive Specialties Inc.
In that case, Mr. Richard Poillucci of Easton pled guilty to a three-count information alleging his aiding the preparation of false tax returns for his body shop that specialized in the repair of high-value vehicles.
Between 2012 and 2015, Mr. Poillucci converted numerous payments made to the body shop by check into cash at check-cashing locations in Massachusetts and Rhode Island. He did not report the checks he cashed as income or the expenses that he paid with the cash proceeds from those checks on his body shop’s income tax returns. Although he cashed checks over these three years totaling in the millions, the net income Mr. Poillucci failed to report to the IRS amounted to approximately $569,367. In employing this scheme, Mr. Poillucci’s body shop avoiding paying $215,552 in federal income taxes.
Mr. Poillucci received a sentence of four months of home confinement, plus two years of supervised release. He also had to pay a $10,000 fine and make restitution of $215,522, to the IRS. At the time of his sentencing, he had already made restitution.
The federal officials involved in Mr. Haddad’s prosecution
United States Attorney Andrew E. Lelling and Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation, announced the charges filed against Mr. Haddad. The prosecuting Assistant U.S. Attorney is Sara Miron Bloom of Andrew Lelling’s Securities, Financial and Cyber Fraud Unit.