PaySource was a co-employment company — meaning that it hires a client company’s employees, thus becoming their employer of record for tax and insurance purposes.
- Company began in Albany, N.Y., in 1993
- Employed 40 people
- Had as many as 190 client companies nationwide
- Annual revenues of $120 million
DAYTON — The former owner and chairman of PaySource Inc. who was indicted on 67 federal counts was released on $50,000 bond Tuesday, one day after his arrest on 67 federal felony counts.
He was charged with defrauding the Internal Revenue Service of $26.7 million by filing false reports.
Robert R. Sacco, 59, formerly lived in Huber Heights and now lives in Orlando, Fla. IRS and customs agents arrested him Monday at Orlando International Airport as he returned from a vacation in Costa Rica.
The former Huber Heights resident will be summoned to appear in federal court in Dayton at a later date.
“The amount is enough to be staggering,” said Cincinnati attorney Howard L. Richshafer, a former IRS agent.
A federal grand jury indicted Sacco on Oct. 26, but the indictment remained under seal until late last week. Sacco is charged with:
• One count of conspiracy to defraud the United States by impeding the IRS.
• One count of conspiracy to commit mail fraud, wire fraud and money laundering.
• 10 counts of wire fraud.
• 39 counts of money laundering.
• Six counts of tax evasion.
The indictment includes a request for a money judgment to recover the $26.7 million he’s accused of defrauding from the government.
According to the indictment, Sacco defrauded the government by withholding money to pay federal employment taxes from employees’ paychecks, then keeping the money.
The company’s CEO, Charles C. Painter, pleaded guilty in February to one count of aiding the preparation of a false federal employment tax return. He is to be sentenced Dec. 16 and faces a maximum of three years in prison. Federal authorities said he avoided paying $7 million in taxes during the second half of 2007.
Painter is identified as an “unindicted co-conspirator” in Sacco’s indictment as is “T.G., a person whose identity is known to the Grand Jury,” and who “previously served as PaySource’s Chief Financial Officer.”
Directing his co-conspirators to file false IRS documents, Sacco was able to avoid paying federal employment taxes owed by PaySource between October 2007 and April 2009, the indictment states.
Howard L. Richshafer, an attorney and former IRS agent, said that the IRS often files civil proceedings — not criminal — with the goal of getting the money paid. But with allegations of false documents and a huge amount of money, it probably made the government go a different way, he said.
“This sounds like a pretty egregious case,” he said. “That’s probably why they went after them.”
Richshafer said it has been his experience that companies themselves, rather than payroll service operators like PaySource Inc., fall behind in forwarding employee withholding funds to the IRS. But, if the company gives the payroll service operator control over the payroll accounts, there could be a temptation to keep money that legally should be sent to the IRS, he said.
“As the economy has gotten poorer, since 2008, I’ve seen more and more companies having this sort of problem,” he said.
It’s potentially a double-whammy problem for the government, because employees will use their W-2 forms to get refunds on amounts that were never paid in the first place, he said.
The federal and state governments have additional enforcement powers in cases like the PaySource matter, Richshafer said. After the criminal case is concluded, federal and state authorities may file civil claims against financial officers of the corporation that the payroll service worked for. So government authorities could pursue bank accounts, homes, stock portfolios and other property owned by the corporate financial officers, he said.
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