Husband and Wife Owners of Annapolis-based Hustead Dental Plead Guilty to Failing to Pay Employment Taxes

Failed to Pay $1.9 Million in Employment Taxes

June 23, 2010

Baltimore, Maryland - Jay Wayne Hustead, age 63, and his wife, Susan K. Hustead, age 56, both of Annapolis, Maryland, pleaded guilty yesterday to failure to pay employment taxes related to their corporation, Hustead Dental and Orthodontics, PA.

The guilty pleas were announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Rebecca Sparkman, Special Agent in Charge of the Internal Revenue Service - Criminal Investigation.

“Employers who fail to remit withheld employment taxes to the IRS are not only enriching themselves, they are creating financial problems for their employees,” stated Rebecca Sparkman, Internal Revenue Service-Criminal Investigation Special Agent in Charge, Washington DC Field Office. “The IRS-Criminal Investigation understands the very real consequences this type of crime has not only because of the loss of tax revenue to the United States government, but because of the loss of future social security or Medicare benefits for employees.”

According to the Husteads’ plea agreements, they operated Hustead Dental and Orthodontics, PA, which employed several dentists, technicians and office employees, and from 2001 to 2006 had annual payrolls exceeding $1 million. Jay Hustead was the company president and sole owner, and was responsible for the dental operations. Susan Hustead was responsible for business management, including working with company accountants on tax issues.

Hustead Dental used a payroll service to process the company’s payroll and prepare quarterly employment tax returns, including withholding employment taxes from employee wages on behalf of the dental office. The payroll service mailed the quarterly employment tax returns to the dental office with instructions for filing the returns. The Husteads admitted that for tax years 2001 through the first half of 2005, they did not file the quarterly employment tax returns. In October 2005, after receiving a letter from an IRS revenue agent requesting that they file the delinquent employment tax returns, the Husteads filed the returns which falsely stated that all employment taxes were paid. The Husteads also did not timely file quarterly tax returns for the remainder of 2005 and 2006, filing those returns in February 2007.

According to their plea agreements, the Hustead Dental office manager received the notice of taxes due from the payroll service, entered the information into Quickbooks, printed the checks to pay the IRS and provided the checks to Susan Hustead. The Husteads admitted that they did not send the checks to the IRS. Of the 110 Quickbook entries indicating employment tax payments to the IRS, the IRS only received one check for $25,521 in 2006. Out of the accounts containing the federal employment taxes withheld from employees and not paid to the IRS, dozens of checks totaling $163,000 were drawn payable to Jay Hustead and deposited into the couple’s personal bank account. In addition, checks totaling $116,000 were used to pay business expenses, such as office rent and supplies, and a credit card bill. A check for almost $5,200 was used pay the Husteads’ country club. More than $927,000 of the funds to be paid to the IRS remained in the Hustead Dental corporate bank account.

From 2001 to 2006, Hustead Dental paid $25,000 in employment taxes and owed an additional $1.9 million. For the tax quarter that ended on December 31, 2003, the period charged in the criminal information, the tax loss associated with the Husteads’ failure to pay to the IRS the employment taxes was $65,913.97.

The defendants face a maximum sentence of five years in prison and a $250,000 fine. U.S. District Judge William M. Nickerson has scheduled sentencing for November 5, 2010 at 10:00 a.m.

United States Attorney Rod J. Rosenstein commended Assistant United States Attorney P. Michael Cunningham, who is prosecuting the case.


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