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US – PEO Operator Pleads Guilty in $120 Million Case

09 May 2012

A professional employer organization executive pleaded guilty last week in a criminal fraud lawsuit that alleged a “pyramiding” scheme that left more than $120 million in unpaid taxes, according to the IRS and filings from federal court in Texas.

The executive, John D. Walker of San Antonio, held an ownership and management role in several PEOs, according to court filings.

The PEO firms would collect employment taxes from clients but not pay them to the government, according to court documents. Under the pyramiding scheme, Walker and others formed a PEO firm, then after employment taxes accrued, they would start a new PEO with the same customers, according to court records. The old PEO would be left with only the tax liability.

Court documents in the Walker case cite four PEO firms that operated in San Antonio from 2002 through 2008, they included:

  • United Capital Investment Group Inc.
  • AK of Nevada Inc.
  • United Focus Inc.
  • Safe Staff Inc.

Walker also did not report to his tax preparer $1 million in extra revenue for tax years 2004, 2005 and 2006 for his personal returns, according to court records.

Walker faces a maximum sentence of eight years in prison along with fines and restitution.

The government takes a hit in large cases such as this, according to the IRS. In addition to money lost in unpaid taxes, the government will lose out because it pays refunds to employees of the employer as if the taxes had been paid.

Walker is the second person to plead guilty related to this PEO case. Another person accused in the PEO operations, Patrick G. Mire, pleaded guilty last year.

The investigation in this case is continuing even after the guilty pleas.

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HROplus

Kristian Svindland 05/09/2012 02:27 pm

For every bad apple, there are hundreds of legitimate providers of these services.

For every industry, there are bad apples.


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