One of the Richard Joseph SalonSpa locations. Source: WBRC file video
BIRMINGHAM, AL (WBRC) -
U.S. Attorney Joyce White Vance announces the owners of Richard Joseph SalonSpas in Birmingham have agreed to plead guilty to tax fraud conspiracy.
Vance says that Richard Joseph Smith, 54 and Timothy Euell Brown, 55, both of Hoover, are accused of failing to pay employment taxes that they withheld from employees' pay for more than eight years.
They have agreed to pay $1.4 million in restitution to the IRS. They also acknowledge that they skimmed money from the business for personal use.
"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 in a press release. "Hardworking Americans receive the protection they deserve with prosecutions like this."
The men have agreed to plead guilty to one count of conspiracy to defraud the U.S., each, which carries a maximum penalty of five years in prison and a $250,000 fine.
Authorities describe how Smith and Brown were able to evade the IRS in a press release:
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.