The owner of Bruce’s Roofing in Enumclaw pleaded guilty today in U.S. District Court in Seattle to willfully failing to collect and pay over tax, announced U.S. Attorney Jenny A. Durkan.

Bruce H. Sprague, 52, admits in his plea agreement that he paid his employees a portion of their wages in cash from 2005-2008, and that he did not collect employment taxes including Social Security, Medicare and income tax withholding from the cash wages.  In his plea agreement, Sprague agrees to pay restitution of $1,179,761 to the IRS.  Sprague faces up to five years in prison when sentenced by U.S. District Judge Thomas S. Zilly on November 8, 2012.

According to the plea agreement, Sprague, the sole owner of Bruce’s Roofing LLC, informed his employees in early 2005 that they would receive a portion of their wages in cash.  The cash payroll was about 50 percent of each employee’s pay.  No payroll taxes were collected on the cash portion of the employees’ pay.  By paying in cash and not reporting the wages, Sprague avoided more than a million dollars in payroll taxes.  In 2006, Sprague failed to collect and pay over to the IRS $391,548 in employment taxes.  In 2007, he failed to collect and pay over to the IRS $448,642 and in 2008, he failed to collect and pay over to the IRS $339,571.  Even as he was failing to collect and pay over the employment taxes, Sprague was taking substantial wages and profits from the business – more than $929,000 in 2005, more than $1 million in 2006, more than $1.3 million in 2007, and  more than $685,000 in 2008.  In his plea agreement, Sprague agrees to cooperate with the IRS to determine all taxes due and owing from him and his company.

“Paying employees in cash is not necessarily the problem,” said Kenneth J. Hines, the IRS Special Agent in Charge of the Pacific Northwest.  “It’s when employers fail in their responsibility to withhold and pay income and employment taxes that employers could face legal consequences.  Tax fraud is not a victimless crime.  Loss of tax revenue could directly impact the government’s ability to fund social security and Medicare benefits that we all rely on as we get older.

Willful failure to collect and pay over tax is punishable by up to five years in prison and a $250,000 fine.

The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI).  The case is being prosecuted by Assistant United States Attorney Susan Loitz.