Victims of AccuPay on What Happened and How to Protect Your Business
Call it a recipe for disaster.
Begin with an industry for which regulations have not kept pace with technological and procedural advances. Steep for 25 years in an area where people’s words are still as good as a handshake. Add in hundreds of business owners who trust what they see and believe what they are told. Cover with lies, fraudulent paperwork and misdirection crafted by skilled money crunchers.
Add in taxing authorities who, in hindsight, should notice clusters of inaccurate paperwork and failure to pay notices being generated to clients of a company already known to them for unscrupulous practices. When the taxman knocks, business owners look more closely at their tax payment records. The disaster is set.
March 1, 2013. Bel Air police wrap crime scene tape around the perimeter of AccuPay Payroll Services at 206 E. Churchville Road. Passersby see investigators carting business records to a gray van parked at the front door of the two-story house Beverly and Kevin Carden purchased in 2003 and converted to office space.
Their crime? Newspapers reported five lawsuits filed by clients alleging that AccuPay and the Cardens stole federal and state payroll tax payments collected from their clients rather than pay them.
It was a payday Friday, and George Heidelmaier remembers it well. He describes near pandemonium as AccuPay clients in a panic pull into his place of business, It’s PayDay, LLC.
“We got people paid,” he says. “We normally get about 100 new clients a year. We picked up 55 in a three-week period.”
In the months that followed, news-papers reported the AccuPay situation is worse than imagined: victims could number as many as 600 and unpaid taxes easily could be in excess of $2 million.
A mostly unregulated industry
“I’m not a real stickler on regulations, but the field does need a bit more regu-lation,” Heidelmaier believes. “There are dishonesty bonds that could be required. For a small business on a shoestring budget to repay taxes it previously sub-mitted to AccuPay to do the same … A $150,000 fine or a $750 fine could be what brings a business down.”
Elected officials and lobbyists seem to agree.
|Affected business owners should contact Asst. Comptroller Joe Shapiro at 410-260-4020, or email him at email@example.com to determine whether they have any delinquent income tax withholding returns or outstanding withholding liabilities.|
U.S. Senator Barbara Mikulski (D-Md.) held an April roundtable with AccuPay victims and sent letters to the IRS asking for penalty and interest relief. In her April 8 letter, she asked: “The Dept. of Justice has prosecuted more than two dozen payroll companies who failed to remit payroll taxes on behalf of their clients. Why is the IRS not taking serious and sustained action to prevent this type of crime?”
The Tax Advocate Service’s 2012 Annual Report claims that between 2007 and 2012, 24 payroll service providers stole $300 million in employment taxes from businesses that paid them.
Regulation at the state level also seems lacking.
In a Sept. 24 news release, State Sen. Barry Glassman discussed implemen-tation of Senate Bill 1068, which he introduced to create a commission to study payroll services regulations. The Bill was passed in the final days of the 2013 Session.
In the release, Glassman noted that only nine states currently have a statute, regulation or administrative policy re- lating to the oversight of payroll service companies. He said, “I want to make sure that we take a close look at evaluating any protections that can be put in place to prevent this type of activity from happening again. It has been devastating to many small businesses who thought they had paid their tax obligation, only to find out later that they had fallen victim to fraud.”
AccuPay’s owners were known, and trusted
Advice abounds online for business owners seeking to secure a payroll services provider, not all of it good. In guides published by payroll.com, entrepreneur.com, inc.com and bizjournals.com, only the latter two mention checking on the reputation of a payroll services provider prior to hiring them. While inc.com suggests looking for grievances filed with Dun & Bradstreet, Bizjournal.com suggests that business owners ask for three to five references from each payroll service or system provider. The writer says, “Speak with each reference directly about their positive and negative experiences.”
The problem is that, in this case, AccuPay and the Cardens would have passed the smell test.
Beverly and Kevin Carden were long-time residents of Bel Air. Their business was well-es-tablished, and by all appearances legitimate from its founding in 1988 through about 2008. In a November 2008 article I wrote for the “Harford Business Ledger” about AccuPay’s 20th anniversary, the Cardens talked about how they got started.
The article stated: “Before founding AccuPay, Beverly and Kevin both worked for a major payroll services company. She found herself out of a job when another major payroll company bought out her employer, gobbled up its clients and laid off almost all of its staff. Kevin was in the middle of an impor-tant project, so he was asked to stay, temporarily.
“Beverly, a mom who worked her way up from a third shift computer operator to vice president and general manager, was suddenly unemployed. She had significant experience opening new offices for her former employer, so she decided to open one for herself.
“AccuPay’s first office was in the basement of Beverly and Kevin’s home. Twenty years later, with powerful, proprietary software, a staff of nine and plans to open AccuPay offices in New Jersey, Florida and California by 2010, the Cardens can laugh about the company’s humble beginnings. They say they are grateful to the Harford County community that has helped them build a solid reputation that has drawn new clients almost exclusively by word of mouth for 20 years.”
The scam and the victims
Attorney George Robinson represents several cre-ditors in the bankruptcy petition the Cardens filed in March for AccuPay. He represents other former AccuPay clients as they negotiate repaying their tax obligation, as well as interest and penalties.
Robinson says he has previously filed two lawsuits against AccuPay on behalf of Saxon’s Diamond Centers and DuClaw Brewing Company. The Saxon’s case settled and the DuClaw case remains pending due to the bankruptcy proceeding AccuPay filed Sept. 17, 2012, on behalf of DuClaw Brewing Co. of Bel Air. Robinson filed suit against AccuPay, Inc., as well as the individuals Kevin Carden, Beverly Carden, Bryan Winterbauer, Stephanie Winterbauer and Erin Carden. Like Saxon’s, DuClaw discovered six-figure payroll tax obligations that taxing authorities expect them to pay a second time, as well as interest and penalties for federal taxes.
DuClaw alleges that the business entered into a contract with AccuPay for payroll services in or about October 1995. The suit states, “An integral component of said contract … were Powers of Attorney executed by Plaintiff and Defendant AccuPay.” The Powers of Attorney gave AccuPay authority to draw paychecks to Plaintiff’s employees; draw checks electronically to pay payroll taxes to the IRS and the State of Maryland; and file DuClaw’s 940 and 941 forms with the IRS and corresponding tax forms with the State.
All was well until 2008, when DuClaw’s owners began receiving IRS and state notices regarding deficient and unpaid payroll taxes, and delinquent and unfiled forms. The lawsuit states that the Plaintiff upon receipt presented each and every notice to AccuPay, and each time was told the IRS or Comptroller’s Office was at fault and that AccuPay would reconcile the account with each agency.
The complaint indicates this pattern continued, and their complaints continued, until DuClaw ceased receiving notices. The Plaintiff believed AccuPay had finally reconciled its accounts with the taxing authorities. Instead, the lawsuit claims the defendants abused the Powers of Attorney and changed the business’s address of record, so that notices of late, underpaid or unpaid taxes went instead to AccuPay.
In 2012, after the plaintiff requested an accountant audit its payroll, the deception was discovered and the Plaintiff was found to owe $306,836 in unpaid taxes, interest and penalties.
Stephen Tauber is co-owner and vice-president of the Walchli-Tauber Group, a media company specializing in medical journal ad sales headquartered in Bel Air. He contracted for services with AccuPay and, like DuClaw, saw a change several years ago.
“When I approached them about the notices, they said they had a new software package, that they’d take care of it. They had a Power of Attorney, and they changed our business address to theirs. We didn’t find out until this December or January, when the IRS contacted us. Once we found out, we had the address changed back and we started getting all these notices,” Tauber says. “It wasn’t the brightest move, but I live maybe five minutes away from them, so I knocked on their door. One of the kids told me their father was ill. Then it changed to he was in New Jersey. They couldn’t keep their story straight.”
That’s not all that was unsettling. Tauber says, “I could see their dining room table, the way the house was laid out. There were multiple desktop computers on it. One night, as I passed by on my way home from work, I saw they were packing to leave. By that time, I had spoken to the FBI and I knew the Bel Air police were investigating. I called the police. I knew there was a court order stating they could not remove computers.”
Keith Adams operates the Forest Hill based Adams Custom Remodeling LLC. He, too, fell victim to the AccuPay scheme.
“I started with AccuPay nine or 10 years ago. They were friends of friends. I knew them on a personal level and figured when I needed a payroll service, I’d keep it close and start using them. Everything was fine until the past couple of years, when Kieren (Carden) left,” Adams says. “When George (Heidelmaier) left, everything started to go crazy.”
Adams remembers when Heidelmaier, owner of It’s PayDay, worked for AccuPay in marketing. Heidelmaier says he left “when as business increased, more notices were coming in. I felt my reputation was on the line.”
Adams says when he received notices, he’d take them to Kieren Carden and was told they’d be taken care of. He says, “When Kieren left, Kevin told me they were taken care of. The notices stopped coming. Then, the IRS shows up at my house. They shut them down five days later …They would submit erroneous paperwork with erroneous numbers. To this day, I am getting letters and notices. They tried to create a paper nightmare for the IRS so they wouldn’t get caught. At least that’s the way it looks to me.”
Heidelmaier believes, once the dust settles, It’s PayDay and other small payroll companies could all be victims, as well.
“The new clients we gained, they may end up going out of business,” he says. “The large payroll companies with larger funding are using this situation as leverage as to why small companies shouldn’t be retained. Potential clients are asking how, given the positive reputation AccuPay’s owners had until the business was shut down, my small business and my good reputation can truly be trusted.”
What the taxing authorities are doing
“What happened to these small businesses is atrocious,” says Christine Feldmann, spokesperson for Maryland Comptroller Peter Franchot. “It’s an unfortunate exam-ple that there are some unscrupulous folks in operation, and you have to be very vigilant about who you trust with your money, because you are ultimately responsible for what you owe.” Feldmann indicates Maryland is waiving penalties and interest for AccuPay clients from whom state payroll taxes were collected but not paid and that about 100 AccuPay clients have contacted the Maryland Comptroller’s Office thus far to set up payment plans for unpaid payroll taxes.
AccuPay victim relief at the federal level is more problematic.
In Sen. Mikulski’s Nov. 5 letter to IRS Acting Commissioner Daniel Werfel, she said, “Business owners in Maryland who may have been harmed by AccuPay need a government on their side. They need timely resolutions to their cases, including the waiver of fees and penalties where appropriate. These businesses should not be subject to any more red tape or inaction by the IRS. They are relying on the agency to take serious action to minimize the damage caused by fraudulent activity.”
What did the taxing authorities know and when?
On April 8, Sen. Mikulski sent a letter to Steven T. Miller, then acting IRS com-missioner, saying, “I am frustrated by reports that the IRS was aware of irregularities at AccuPay and other third party processors for years and did not take significant action to protect small businesses.” In the Nov. 5 letter, Sen. Mikulski again requested an in-person briefing regarding, among other questions, the following: “How many fraud cases has the IRS encountered from AccuPay? How are these cases clustered? Are they all from Maryland? If not, what other states have been affected?”
It appears the IRS knew enough in 2012 to issue a new regulation.
On July 26, 2012, the IRS released Re-venue Procedure 2012-32, which laid out new requirements for payroll firms and others that act as reporting agents. The procedure is a revision of Revenue Proce-dure 2007-38. An IRS summary notes, “Section 5.05 has been revised to require Reporting Agents to notify taxpayers in writing on at least a quarterly basis that an Authorization does not eliminate the taxpayer’s liability for the failure to file employment tax returns or remit employer taxes.”
Indeed, problems at AccuPay were on the federal and state radar as early as 2010.
Lance Hersh and Kevin Ferrell, owners of Saxon’s Diamond Centers of Aberdeen and Bel Air, filed suit against AccuPay in 2010. The suit was settled in 2011. When called for comment, Hersh said through a representative that the settlement agreement stipulated he not speak about the lawsuit nor about details of the settlement.
“It’s sad,” Robinson says. “A lot of bus-iness owners, some for more than 30 years, are facing the demise of their businesses for tax liabilities they’ve already paid. This is affecting people’s livelihoods. And absolutely, these are businesses the people of Harford County would recognize. When a business nets $100,000 and they’re told they have to pay $150,000 in taxes they have already paid along with interest and penalties to the IRS and state, you can see how devastating it would be.”
Tauber says his business employs 15 people and owes almost $235,000 in unpaid payroll taxes. He says, “The most upsetting thing is that the IRS knew there were issues years ago, that there were other claims against them, Saxon’s and DuClaw’s.”
So what’s a payroll services consumer to do? Heidelmaier and Feldmann have a few tips for business owners looking for a payroll services provider.
“We tell clients to trust, but verify,” Heidelmaier says, noting his work and the work of all payroll providers can be verified at the federal level by accessing the IRS’s Electronic Federal Tax Payment System website. “We believe the state needs a better way for business owners to verify third party payments.”
Feldmann says red flags when seeking a payroll services provider include being asked to sign blank forms and being asked to sign anything in pencil. I95