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Federal Charges Filed in Connection with Alleged Payroll Fraud Scheme in Georgia

Two men in Georgia have been arrested on federal charges that they intentionally misrepresented the employment classification of construction workers on a project for the Centers for Disease Control, which is headquartered in Atlanta. Cesar Arbelaez Tabares and Juan Carlos Bazantes were arraigned after prosecutors said both men "committed fraud in connection with a construction project" for the CDC.

Prosecutors said the men engaged in a somewhat elaborate scheme to defraud both the CDC and the Internal Revenue Service. Their actions caused IWES to fail to report over $800,000 in wages to the IRS, investigators said.

It is important to note that these men are only accused of the crime. They will get their day in court, but these indictments are a clear indicator of how seriously the government is taking the problem of worker misclassification, also known as payroll fraud.

Tabares and Bazantes were executives of a labor broker called IWES, which supplied drywall laborers to contractors and subcontractors.

Prosecutors said that starting in 2012, IWES supplied drywall laborers for a construction project with the CDC. The federal investigation revealed that Tabares and Bazantes maintained a double payroll system for its workers on the CDC project, which internally classified those workers as either “W2.REAL” or “W2.F.2CHK." Those workers who were classified as “W2.REAL” received one paycheck each pay period with employment taxes withheld, received an IRS Form W-2 at the end of the calendar year, and were reported on quarterly employment taxes filed by IWES with the IRS.

Workers who were classified as “W2.F.2CHK” received two paychecks simultaneously each pay period and the first paycheck totaled the worker’s net pay (gross wages minus employment taxes withheld), while the second paycheck received by the worker totaled the employment taxes withheld from the first paycheck so that the worker, in reality, was receiving his or her gross wages with no tax withholdings. Those who were classified as “W2.F.2CHK” performed many of the same job duties as those who were classified as “W2.REAL” and should have been likewise treated as employees, but they allegedly did not receive an IRS Form W-2 at the end of the calendar year and were not reported on quarterly employment taxes filed by IWES with the IRS.

“Employers are required to truthfully account for their employees and withhold federal employment taxes on their behalf,” said U.S. Attorney John Horn. “These defendants allegedly committed fraud in connection with a construction project for the CDC by maintaining a double payroll system that concealed the true employment status of their workers and denied the IRS its collection of employment taxes in the process," Horn said.

Special Agent in Charge Veronica F. Hyman-Pillot said "business owners have an inescapable obligation to withhold income taxes for employees and remit those taxes to the Internal Revenue Service." She added that "corporate officers who neglect to withhold payroll taxes and remit them to the IRS in order to gain a competitive advantage, will be prosecuted to the fullest extent of the law.”