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Employers and wage reporting: fraud alleged in California case

We write frequently in this blog about employment taxes and the troubles with the IRS that failure to pay those taxes can cause. Sometimes, the troubles come despite the best of intentions. For example, when employers experience cash flow problems, temporarily tapping payroll tax funds can seem to make sense at the time.

Unfortunately, even an innocent mistake like that can result in tax litigation. It can lead to a tax audit or other tax compliance issues that an experienced tax attorney can help resolve.

There are also times, of course, when employment tax reporting is involved in possible criminal activity. In a California case last week, federal agents arrested three people on charges that they had fraudulently obtained unemployment and disability benefits after filing false wage data with the government.

Authorities said the three people were engaged in what is commonly called a "fictitious employer" scheme. The ring leaders in the scheme allegedly created fake pay stubs and sold them to others. The suspects then made false wage reports through their companies.

With this groundwork in place for the fraud, the fake employees allegedly made false claims of being laid off. Using the false pay stubs, they proceeded to collect government benefits they weren't entitled to. These benefits consisted of unemployment compensation, disability insurance, or both of those things.

According to federal authorities, the ringleaders of the scheme were arrested in May of 2012. Prosecutors allege there were more than 400 false wage reports involved in the scheme.

This particular fictitious employer scheme involved agricultural workers in Northern California. Whatever your business is, however, it serves as a reminder of the importance of reporting accurate wage data to government authorities. This includes not only the IRS and state taxing authorities, but also those that administer unemployment insurance.

Source: "21 people charged in unemployment fraud scheme," CNN Money, Annalyn Kurtz, 1-16-13

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