Hillsboro Drywall Company President Sentenced for Federal Tax Evasion

PORTLAND, Ore. - On Friday, September 26, 2014, Stephen Gregory Nagy, 53, Hillsboro, Oregon, was sentenced by the U.S. District Judge Michael W. Mosman, to nineteen months in federal prison for evading the payment of federal payroll taxes.  Judge Mosman also ordered that Nagy pay $481,517.73 in restitution to the IRS, and serve a three-year term of supervision upon his release from prison.  Nagy, who had previously pleaded guilty to tax evasion, was the president of S&S Drywall Assemblies, a company providing drywall services in the construction industry, from January 2005 through September 2011.  Nagy was ordered to surrender to U.S. Marshals by December 2, 2014.

The IRS assessed S&S Drywall Assemblies $481,519 in federal employment taxes, penalties and interest for the quarters beginning June 2009 and ending September 2010.   Nagy met with the IRS in May 2010, and committed to a plan to pay the past due payroll taxes for his company, but he decided not to comply with the payment plan and engaged in a variety of interrelated fraudulent schemes to evade the payment of the delinquent payroll taxes.

Nagy began conducting extensive business transactions in cash in order to hide funds from the IRS. He obtained the cash by illegally hiring undocumented workers to work on prevailing wage jobs, paying them a small portion of the prevailing hourly rate, and demanding that they kick back the largest portion of their wages to him in cash.  Nagy failed to report this cash to the IRS. 

Nagy also forced some S&S Drywall employees to file for unemployment benefits through the Oregon Employment Department.  After the employees filed for unemployment coverage, Nagy fraudulently insisted that they continue to work full-time for S&S Drywall.  The unemployment benefits did not fully compensate the employees at a rate equal to their previous S&S Drywall salaries.  To make up the deficit, Nagy gave employees cash payments amounting to the difference between the unemployment benefits and their full-time salaries.  These cash wages were neither reported to the IRS, nor were traceable by the IRS.  Nagy did not withhold federal income taxes, or Social Security and Medicare taxes from these cash payments.  Another result of this scheme was that Nagy had the State of Oregon pay a large portion of his labor costs, giving him more profit from his drywall business.  Nagy used some of the cash from the prevailing wage fraud to pay the difference between his employees’ full-time salaries and the illegal unemployment benefits they were receiving.  Nagy intimidated, manipulated, and threatened the loss of much needed jobs to gain the cooperation of his employees in this scheme.

Nagy also thwarted IRS collection efforts by placing business and personal assets in the names of others, by physically hiding the assets, and by eventually transferring all S&S Drywall Assemblies income, contracts, receivables, and assets to ASM Drywall, Inc., a shell company he created and placed in his sister’s name.

“Stephen Nagy spent years planning and executing his scheme to steal from his employees and to cheat the IRS,” said U.S. Attorney Amanda Marshall. “It is through the diligent efforts of our law enforcement partners, the IRS and the investigators at the Oregon Department of Justice, that this criminal was finally brought to justice.”

"When a person undertakes to cheat on their tax obligation as Nagy did, they take advantage of all the American taxpayers," said Special Agent in Charge Teri Alexander of IRS Criminal Investigation.  "Paying taxes is the price we all pay to live in a free and functioning society.  When someone fails to pay their fair share, the rest of us bear the burden.  Moreover, in this case, Nagy cheated his employees who trusted him to pay their payroll deductions, thus robbing them of Social Security, Medicare, and other important contributions."

Special Agents with the IRS-Criminal Investigation, and the Oregon Department of Justice, Criminal Justice Division investigated the case.   Assistant U.S. Attorney Claire M. Fay and Special Assistant U.S. Attorney Andrew D. Campbell prosecuted the case.