By Ruth Simon
Millions of dollars destined for federal, state and local taxes
remain stuck in limbo, more than a month after the collapse of a
New York payroll processing firm.
The unpaid taxes are the latest headache for customers of
MyPayrollHR and other payroll companies tied to Michael Mann. In a
criminal complaint filed in September, federal prosecutors charged
Mr. Mann with defrauding banks and other financial institutions of
about $70 million.
As Mr. Mann and his businesses came under scrutiny, bank
accounts tied to his businesses were frozen. As a result, an
estimated $30 million deducted from businesses that used his
payroll firms didn't reach employees or tax authorities in early
September. The continuing challenges highlight the difficulty of
recapturing funds when a payroll processor collapses and even
knowing whether required tax payments were made.
An attorney for Mr. Mann didn't respond to requests for comment.
He previously said his client was cooperating with authorities. Mr.
Mann hasn't entered a plea in the case in U.S. District Court in
Albany.
Most employees whose companies used MyPayrollHR have been made
whole, but tax payments handled by another of Mr. Mann's firms
remain in limbo.
Ed Daugherty, co-founder of two Fort Lauderdale, Fla., staffing
companies, hired an accounting firm to determine whether taxes had
been paid in the dozen states where they operate. The current
estimate: $68,840 in federal tax payments and more than $40,000 in
state and local taxes haven't been paid. "It's like a hurricane
hit," said Mr. Daugherty, who spent most of September working to
recover employee paychecks.
Sorting things out is particularly difficult because of the
number of parties involved in payroll processing and the number of
tax authorities. "It has become something of a black hole," said
James Wright, co-owner of Bridge Technical Talent, a technology
staffing company in North Kingstown, R.I., that figures about
$30,000 in taxes the firm owed weren't paid.
National Payment Corp. said it was unable to access about $4
million in funds destined for tax authorities because the account
holding those funds was frozen by Mr. Mann's bank, Pioneer Bancorp
Inc. NatPay is one of the firms that handles the flow of tax
payments through the ACH Network, used to move funds from one bank
account to another.
In some cases, NatPay made required tax payments and then pulled
back those payments because funds weren't available. "National
Payment has lost money in this process, as have many businesses and
individuals," NatPay Chairman George Hamilton said.
In an interview, Pioneer Bancorp CEO Thomas Amell said the
accounts frozen by the bank aren't set up as payroll accounts or
tax accounts. "The assumption being made that Pioneer Bank is in
control of tax payment funds or payroll funds, that narrative is
misleading," he said.
Mr. Amell declined to say how much money has been frozen or when
funds would be returned. "There is a whole team of forensic
accountants and lawyers trying to decode this entire incident," he
said.
In Wisconsin alone, 188 businesses were swept up in Mr. Mann's
troubles, said Peter Barca, secretary of the Wisconsin Department
of Revenue. State officials are still trying to determine how many
businesses missed October tax payments. The state has told
small-business owners it will waive penalties and has been able to
reverse the withdrawal of $280,000 in state income tax
payments.
"There has been very little information as far as where we
should go" to recapture money that didn't make it to tax
authorities, said Shelly Disterhaft, controller for Stainless Flow
Technologies Inc., a 30-person manufacturer of custom piping and
valves in Ripon, Wis.
Ms. Disterhaft discovered last month that $19,000 destined for
federal, state and local taxes was apparently stuck in a frozen
bank account tied to Mr. Mann. Then, in early October, she learned
that $6,600 in state taxes had been paid and then pulled back. The
$6,600 pulled out of the account at the start of October was
returned last week.
It could be a while before employers are notified that required
tax payments weren't made. The IRS generally matches tax payments
submitted by employers against quarterly tax returns and then
alerts businesses to any shortfalls, an IRS spokesman said.
The IRS spokesman declined to comment specifically about matters
relating to Mr. Mann because of federal privacy rules. Missing tax
payments are generally the employer's responsibility, even if some
of the money represents employee withholding, he said.
Some businesses that weren't MyPayrollHR customers are having
tax issues tied to Mr. Mann's frozen bank accounts. That is because
Cloud Payroll, another of Mr. Mann's companies, processed tax
payments for other payroll firms in which he had a financial
interest.
For example, Southwestern Payroll Service Inc. estimates that
more than $5 million in tax payments for its clients may not have
reached their final destination. The Tusla, Okla., company has
about 1,300 customers and remains in business. After Mr. Mann in
2017 took a controlling stake in Southwestern, it began outsourcing
tax payments to Cloud Payroll, the company says.
David Rhoades, who was recently appointed as a receiver for
Southwestern, said he has made a formal demand to Pioneer Bank to
release customers' tax funds. Pioneer said it is evaluating
Southwestern's claim.
"It's a fairly small window" of time that the money wasn't paid,
Mr. Rhoades said, "but it's a lot of dollars."
Write to Ruth Simon at ruth.simon@wsj.com
(END) Dow Jones Newswires
October 20, 2019 13:23 ET (17:23 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.