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Press Release

Richard Joseph SalonSpa Owners Agree To Plead Guilty To Tax Fraud Conspiracy

For Immediate Release
U.S. Attorney's Office, Northern District of Alabama

BIRMINGHAM -- The owners and operators of Richard Joseph SalonSpas in the Birmingham area have agreed to plead guilty to a tax fraud conspiracy for failing to pay employment taxes to the IRS that they withheld from employees' wages over eight years, announced U.S. Attorney Joyce White Vance and Internal Revenue Service Criminal Investigation Special Agent in Charge Veronica Hyman-Pillot.

RICHARD JOSEPH SMITH, 54, and TIMOTHY EUELL BROWN, 55, both of Hoover, together have agreed to pay $1.4 million in restitution to the IRS as part of their plea agreements with the government. Smith and Brown acknowledge in their plea agreements that they withheld employment taxes from salon employees but did not report and pay those taxes over to the IRS. They also acknowledge that they skimmed money from the businesses for personal use.

The $1.4 million represents only the payroll taxes withheld from employees, not the employer portion of payroll taxes, which also went unpaid. Smith and Brown have agreed to cooperate with the IRS in determining their liability for the employer taxes and for unpaid personal taxes.

"These defendants have lived lavish lifestyles at the expense of the employees in their salons, who they cheated out of more than $1 million worth of Social Security and Medicare contributions by keeping the payroll taxes they deducted from employees' wages," Vance said. "Hardworking Americans receive the protection they deserve with prosecutions like this."

"Richard J. Smith and Tim E. Brown had a significant obligation to collect and remit all IRS withholding taxes," Hyman-Pillot said. “The failure to pay over withheld taxes defrauds the tax system and impacts employee benefits such as Social Security, Medicare and Unemployment Compensation,” she said. "IRS Criminal Investigation recognizes that employment tax fraud is a heinous offense and will aggressively pursue individuals who engage in these schemes to defraud the government.”

The U.S. Attorney's Office charged Smith and Brown in an information filed today in U.S. District Court, along with plea agreements for both men. They both agree to plead guilty to one count of conspiracy to defraud the United States, which carries a maximum penalty of five years in prison and a $250,000 fine.

Richard Joseph SalonSpa has been a prominent business for more than two decades with several locations in north Alabama. Smith was a master stylist at the salon's original location in Mountain Brook, and Brown was the business manager who handled finances, including payroll, according to the plea agreements.

The plea agreements outline how Smith and Brown carried out their tax fraud conspiracy as follows:

Beginning in 1991, a company called Smith, Hobart & Brown operated Richard Joseph SalonSpa in Mountain Brook, and Brown was the sole owner and registered agent of SHB. SHB operated the spa from 1991 to July 2006. SHB owed more than $300,000 in employment taxes to the IRS by the third quarter of 2006. The IRS began notifying Brown of payroll tax deficits and requesting payment in 2004. When a revenue officer met with Brown and his accountant in 2007, Brown said he had closed his salon in July 2006 and no longer worked at Richard Joseph SalonSpa.

While the daily operation and management of Richard Joseph SalonSpa never changed, Smith incorporated a new company, RJSS Inc., in June 2006, listing himself as the registered agent. RJSS took over operation of Richard Joseph SalonSpa in Mountain Brook, and Smith and Brown opened a business checking account together for RJSS. Both men were listed as owners and had signature authority for RJSS.

In August 2008, Smith incorporated another business, Richard Joseph Redmont Group Inc., and he and Brown together opened a business checking account for it. In July 2009, Smith and Brown opened a Richard Joseph Salon on U.S. 280 in Inverness, and operated it through the Redmont Group.

"Between the third quarter of 2006 and the third quarter of 2013, Smith and Brown withheld from employees of RJSS Inc., and Redmont Group and failed to pay over a total of $1,408,504.68 in employment taxes to the IRS," the plea agreements states. Since RJSS's inception in 2006, Smith and Brown have not timely reported or paid to the IRS the taxes withheld from RJSS employees, and neither did they timely report or pay to the IRS the taxes withheld from Redmont Group employees since its inception in 2008, according to the plea agreements.

IRS Criminal Investigation Division investigated the case, which Assistant U.S. Attorney Robin Beardsley Mark is prosecuting.

Updated March 19, 2015