Employee Leasing Companies and Individuals Indicted for $13 Million Tax Fraud

A Long Island City-based company and five individuals were indicted on April 19 on charges of payroll tax fraud totaling $13 million. Many believe this to be the largest such tax fraud scheme ever uncovered.

Using a network of employee leasing companies, located at 34-51 Vernon Boulevard, the defendants did not pay federal payroll taxes for about 1,000 employees between 1998 and 2000. The defendants face assorted tax evasion, conspiracy and money laundering charges.

The individuals indicted include Nicolaos Kyprianou, 48, George Kalaitzis, 49, and Athanasios Tsidavis, 55. Prosecutors also indicted Premier Staffing Inc., of Long Island City, one of the companies involved in the scheme.

Normally, employee leasing firms, known as a professional employment organizations ( PEO), list personnel for tax purposes as their own workers, then lease the same personnel back to their client companies. In this arrangement the client companies are only responsible for paying the leasing firm's payroll, and the PEO pays the employees and withholds federal payroll taxes.

In this case the leasing companies did not withhold the appropriate payroll taxes on approximately 1,000 employees. Allegedly the individual defendants used the tax money to pay for personal expenses and to finance other business interests.

Federal prosecutors in Brooklyn also informed a federal magistrate judge that one of the individuals was allegedly part of an earlier scheme in Florida that resulted in a tax evasion of $1.9 million.

SSPC Note: Many industrial painting contractors use employee leasing or staffing companies primarily to control worker compensation insurance costs. However, when using employee leasing companies it is critical for the painting contractor to make certain the leasing company complies with all laws and applicable regulations concerning such items as payment of taxes and required insurances, wage and hourly rates, and proper worker compensation coverage.

Source: Newsday, April 19, 2002 article