California Executives Plead Guilty to Employment Tax Crimes

Two California men pleaded guilty yesterday to not paying over employment taxes to the IRS.

The following is according to court documents and statements made in court: Lalo Valdez and Matthew Olson, both of Northern California, operated a San Jose-based health informatics and product development company that provided clinical care and technology services to clients in healthcare and academia. Valdez was the CEO and Olson the CFO. As such, both were responsible for the company’s operations, managed its internal books and records, signed checks on behalf of the company, and hired and fired employees. Both men also were responsible for withholding Social Security, Medicare, and federal income taxes from employees’ wages and paying those funds over to the government each quarter. The timely payment of quarterly employment taxes is critical to the functioning of the U.S. government, because, for example, they are the primary source of funding for Social Security and Medicare. The federal income taxes that are withheld from employees’ wages also account for a significant portion of all federal income taxes collected each year.

For every calendar quarter from the first quarter of 2017 through the second quarter of 2021, Valdez and Olson withheld these taxes from employees’ wages but did not pay them over to the IRS or report them on quarterly tax forms. Instead of paying over the taxes, Valdez and Olson used the company’s money to pay for country club memberships and season tickets to the San Jose Sharks of the National Hockey League.

During this same period, Olson also was one of the owners and operators of a day spa located in Saratoga, California. There, Olson was responsible for collecting and paying Social Security, Medicare, and income taxes to the IRS. From the second quarter of 2017 through the fourth quarter of 2020, however, Olson collected but did not pay them over to the IRS or report them on quarterly tax forms.

In total, Olson caused a tax loss to the IRS exceeding $2.1 million.

Valdez caused a total tax loss to the IRS of nearly $1.5 million.

Valdez and Olson are scheduled to be sentenced on Oct. 20. Both men face a maximum penalty of five years in prison as well as a period of supervised release, restitution, and monetary penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division and Acting U.S. Attorney Patrick D. Robbins for the Northern District of California made the announcement.

IRS Criminal Investigation is investigating the case.

Trial Attorney Mahana Weidler of the Tax Division and Assistant U.S. Attorney Kristina Green for the Northern District of California are prosecuting the case.