Tuesday, May 22, 2012

Iowa Tax Case Should Bring Employer Jail Time

How do you deal with workers' compensation scofflaws? By busting them on tax issues.

But just seeking money in a civil tax action won't do the trick - jail time is necessary. That takes commitment of law enforcement. The question is whether law enforcement deems the evasion of workers' compensation obligations sufficiently criminal to seek justice.

In Iowa, James L. Watts, owner of Watts Trucking Service and numerous trash and waste-hauling companies that operate in the Midwest, owes more than $30 million in payroll taxes and has failed to pay more than 14 judgments since 2008 related to injured workers’ claims, according to court records and news reports.

Watts, 69, has ignored tax obligations and opened and closed numerous corporations over the past few decades as tax and workers' compensation issues emerged, court records and officials said. He has formed and run at least 23 different companies, many of which accrued the sizable employment and unemployment tax debt, according to federal prosecutors. Collection efforts have largely failed, officials told WorkCompCentral.

Watts is being sued by the Internal Revenue Service in Federal court. The complaint accuses Watts of "pyramiding" employment taxes by opening new companies to avoid tax obligations associated with existing companies and trying to "stymie" IRS collection efforts.

Until the IRS case Iowa officials had no idea of how egregious Watt's actions have been.

And Iowa has no method to provide for injured workers of uninsured employers, unlike most states, so the victims of Watt's maneuvering have no recourse.

According to state officials, Watt's is just one example of an extensive problem in the state - employers skirting the workers' compensation requirement and, frankly, it seems to me the problem is the product of disinterest by Iowa prosecutors.

Dave O'Brien, a Cedar Rapids attorney who represented an injured worker in a case against one of Watts' companies in 2010, told WorkCompCentral that, "It's criminal under Iowa law (to not cover employment-related injuries), but there's really no history of the state enforcing that."

Now that the IRS is seeking Watt's money, O'Brien says his client will probably never be able to get his injuries addressed.

Chris Godfrey, head of the Iowa Workers' Compensation Division, said there is no state fund in Iowa to pick up the costs for injured workers when uninsured employers do not.

O'Brien's client, 45-year-old Jeffrey Carter, was forced to wait two years and be qualified for state-subsidized health insurance before he could get his needed back surgery, providing a stark example of the cost shifting that occurs when employers fail their legal obligations.

The IRS case did give workers' compensation officials a better idea of how many companies Watts was operating in recent years and how extensive his unpaid financial obligations are, said Andrew Mertens, spokesman for the Iowa Association of Justice.

Attorneys for injured workers in Iowa are hoping for criminal charges to be prosecuted against Watts to set an example.

According to Jeff Thompson, an Iowa deputy attorney general, the state is considering both civil and criminal remedies for dealing with Watts' workers' compensation violations.

The civil federal tax case, meanwhile, seeks an injunction, judgments on the tax debts and foreclosure of a few residential properties Watts owns.

We have seen in other venues that civil penalties are typically not very effective against white collar criminals because they amass so much wealth and become so adept at hiding it that damages just become a cost of doing business. In fact this was Watts' strategy - incurring obligations then starting a new company to avoid payment. Watts obviously understands how to avoid civil penalties.

So the way to deal with egregious scofflaws is jail time - protracted jail time.

Perhaps now that the IRS has demonstrated just how flagrant Watts was in flouting the law, Iowa law enforcement has the information needed to permit the Department of Corrections to provide him with room and board.

"(Watts' companies) don't really seem to have a system for taking care of their workers after an injury," Mertens told WorkCompCentral. "But they're not alone. It's a pretty wide problem and there are examples all across Iowa and the country of corporate lawbreakers who aren't paying for workers' compensation insurance. The workers are paying the price."

Martens is only partially correct. Law abiding companies, and the rest of society, bear these costs too.

I submit that Iowa's failure to seek criminal redress against Watts is a failure of the state to protect its citizens. Now that the IRS has laid out the case for them, the Iowa Department of Justice and Office of the Attorney General have no choice but to move forward with a prosecution of Watts.

1 comment:

  1. Taxes will soon be used to damage anyone who is an enemy of the regime. And by enemy I mean anyone who is not on the government teet. I just sit back and look at what the proposals by our local bureaucratic geniuses are putting forth that affect my bail bonds company in Las Vegas, and I cringe. I just want to curl up in a ball and cry like Private James Ryan in "Saving Private Ryan." circa 1997.