Willful Failure to Report Employee Wages to EDD Leads to Felony Conviction

Posted on by Moskowitz LLP Posted in Criminal Tax Law, Tax: Audits, Litigation & Collection

For over a decade, Fumeei Nikko Wu owned and operated the iconic 10,000 square foot, three-story Stonehouse Old Brewery in Nevada City, CA. Following complaints and a 1 year-long joint investigation by local police and TRaCe (the Tax Recovery and Criminal Enforcement Task Force of the Department of Alcohol and Beverage Control), Wu was arrested for payroll tax evasion and other felonies.

Wu had owned the property since 2003, but since 2008 she had apparently been struggling to find tenants and turn a profit. From July 2011 through September 2013, Wu did not report all of her employee’s wages and remit payroll taxes – an audit determined that she failed to report a total of $578,659 in wages to the California Employment Development Department (EDD), and that she owed a total of $46,071.

The charges and its consequences

The Attorney General’s office issued an 18-count criminal complaint against Wu, which included multiple counts for willful failure to file quarterly reports to the EDD and pay over amounts due; failure to file returns, collect, account for, and pay unemployment contributions; and willful misrepresentation to the EDD of amounts she actually paid to employees in order to lower her required unemployment benefit payments.

Wu was arrested in October 2015, held on $200,000 bail, and spent 12 days in jail immediately following her arrest. Her business license was suspended, forcing her to cancel events at the Stonehouse. Local news reported that Wu and her friends put together a fundraising campaign through GoFundMe and Facebook to pay $15,000 in back event deposits, wages, insurance and utility costs. They also held a fundraising party in late November, 2015.

Wu recently pleaded no contest to five of the felony counts raised against her under the California Unemployment Insurance Code:

  1. Section 2101.5 – Willfully making false statements or knowingly failing to disclose material information in order to lower or avoid required contributions.
  2. Section 2106 – Procuring, counseling, advising, coercing or assisting someone to willfully make a false statement or representation, or knowingly failing to disclose a material fact for the purpose of lowering or avoiding required contributions.
  3. Section 2108 – Willful failure or refusal to make the required contributions.
  4. Section 2117.5 -Submitting a fraudulent return, report, statement or false statement with or without intent to evade the required filings and contributions under the law (misdemeanor carrying civil penalty of up to $1,000 and up to one year’s imprisonment, or both). 
  5. Section 2118.5 – Willful failure to collect, account for, and pay over any tax or amount required to be withheld by a person required to do so (felony punishable by fine of up to $20,000 and/or imprisonment, at the discretion of the court).

The other charges were dropped, but Wu will have to pay restitution and charges for the investigation against her, and may serve time in jail.

San Francisco employment tax attorneys

Failure to report employee wages and make required payments to the EDD can result in harsh penalties. If you are a business owner who is under investigation or otherwise requires legal and tax assistance, contact the Moskowitz, LLP team today.