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Tuesday, May 31, 2016

Virginia Business Owner Sentenced to Prison for Employment Tax Fraud

An Ashland, Virginia, man was sentenced to prison today in the U.S. District Court for the Eastern District of Virginia for failing to collect, account for and pay over employment taxes to the Internal Revenue Service (IRS), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente of the Eastern District of Virginia.

Michael Manning, 52, was sentenced to serve 18 months in prison, followed by two years of supervised release.  Manning pleaded guilty on Feb. 23, to failing to collect, account for and pay over employment taxes for his masonry contractor construction companies.  Manning was ordered to pay restitution to the IRS in the amount of $677,350.39.

“Mr. Manning chose to withhold employment tax from his employees, and use those funds for his personal benefit, inflicting substantial harm on the U.S. Treasury and gaining a competitive advantage over his law-abiding competitors,” said Acting Assistant Attorney General Ciraolo.  “The Tax Division has made it clear that employers like Mr. Manning, who willfully fail to collect, account for, and pay over employment taxes to the IRS, are engaged in criminal conduct and will be held accountable.  Today’s sentence reflects this priority and the seriousness of such crimes.”

“Investigating employment tax crimes remains one of IRS Criminal Investigation’s (IRS-CI) highest priorities and today’s sentencing of Michael Manning reflects the serious nature of that crime,” said Chief Richard Weber of IRS-CI.  “Failure to collect, account for and pay employment taxes is a crime and it hurts not only federal, state, and local governments, but also employees. We expect all taxpayers to follow the law—whether you are a business owner or an individual—we all must play by the same rules.”

According to court documents, Manning was the President of Manning Construction and Manning-Carhen Construction.  Manning controlled the businesses’ finances and was responsible for collecting, accounting and paying over employment taxes for both businesses.  For the third and fourth quarters of 2014, Manning willfully failed to comply with his legal obligation to pay over more than $700,000 in employment taxes to the IRS.  In addition to failing to pay over the withheld taxes, Manning instructed his bookkeeper to create false financial statements for submission to financial institutions in order to comply with existing loan covenants, to encourage banks to lend new funds to the company, or to enable the renewal of existing loans.  Manning and his bookkeeper openly referred to these false accounting entries as “Bernie entries,” in reference to the accounting techniques of Bernie Madoff and “ghost entries,” when reallocating negative financial results within the companies’ QuickBooks files so that these negative results would not be discovered by third parties.  Moreover, Manning used these same accounting techniques to conceal his use of over $500,000 in corporate funds for various personal expenses, including paying off a lien on his lake property.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Boente commended special agents of IRS-CI, who investigated the case and Trial Attorney Melanie Smith of the Tax Division and Assistant U.S. Attorney Thomas Garnett of the Eastern District of Virginia, who are prosecuting the case. 

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Press Release Number: 
Updated May 31, 2016