Owner of Annapolis-based Hustead Dental Sentenced to Prison for Failing to Pay Employment Taxes

Failed to Pay $1.9 Million in Employment Taxes

December 7, 2011

Baltimore, Maryland - U.S. District Judge William M. Nickerson sentenced Jay Wayne Hustead, age 65,of Annapolis, Maryland, today to two years in prison, followed by three years of supervised release, for failure to pay employment taxes related to his corporation, Hustead Dental and Orthodontics, PA. Judge Nickerson also ordered Jay Hustead to perform 200 hours of community service and ordered him to pay restitution in the amount of $65,913.97, as well as enter a closing agreement with the IRS to pay the full amount of taxes due.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Acting Special Agent in Charge Jeannine A. Hammett of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“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 Jeannine A. Hammett, Internal Revenue Service-Criminal Investigation Acting Special Agent in Charge. “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 his plea agreement, Jay Hustead and his wife, Susan Hustead, 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. Jay Hustead 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 the plea agreement, 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.

Hustead’s wife, Susan K. Hustead, age 57, of Annapolis, also pleaded guilty to her role in the scheme and is scheduled to be sentenced on December 14, 2011, at 9:30 a.m.

United States Attorney Rod J. Rosenstein thanked IRS-CI for its investigation in this case and commended Assistant United States Attorney P. Michael Cunningham, who prosecuted the case.

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