Darrell Smith Jailed 13 Months for Tax Theft

Forest City, Iowa businessman Darrell Smith, 60, was sentenced to 13 months in federal prison yesterday for stealing $502,863 in employment taxes from his workers at Permeate Refining LLC., an ethanol plant in Hopkinton. Smith, president and general partner of Energae—a minority investor in the company—had control over payroll and was legally responsible for remitting withheld taxes to the IRS. He didn’t. Instead, he kept the money, sabotaging his employees’ access to Social Security and Medicare benefits.

From the first quarter of 2011 through the third quarter of 2012, Smith willfully failed to forward tax withholdings, running up a half-million-dollar debt to the U.S. Treasury. When he discovered a subordinate had made unauthorized IRS payments, Smith shut it down—blocking further remittances. His actions weren’t oversight. They were criminal. On June 22, he pleaded guilty to one count of failing to pay employment taxes—a felony that carries stiff penalties for those who treat employee withholdings as personal slush funds.

In addition to prison, Smith was handed two years of supervised release. Federal prosecutors made no apologies for the sentence. “Willful failure to comply with employment tax obligations is a crime,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “Darrell Smith’s jail sentence sends the clear message that the Department will work to ensure that withholdings due to the United States are in fact paid to the Treasury and that honest employers are given the opportunity to compete on a level playing field.”

U.S. Attorney Kevin W. Techau for the Northern District of Iowa called the tax theft a betrayal. “Mr. Smith’s failure to pay employment taxes for over a year was an attempt to dodge his obligations to his employees and to the United States,” Techau said. “Our system and our citizens depend upon employers like Mr. Smith to be honest and pay what they owe in employment taxes. This sentence shows that failing to do so is criminal and there will be consequences.”

Karl Stiften, Special Agent in Charge of IRS Criminal Investigation, emphasized the human cost: “IRS Criminal Investigation realizes the detrimental consequences of employment tax evasion. It results in the loss of tax revenue to the United States government and the loss of future social security or Medicare benefits for the employees.” These aren’t abstract losses—they hit real workers when they need it most.

Smith isn’t the only one facing justice. His co-defendant, Randy Less, pleaded guilty on June 14 to both failing to pay employment taxes and violating the Clean Water Act. Sentencing is set for March 23, 2017. The investigation was led by IRS-Criminal Investigation, FBI, U.S. Postal Inspection Service, and EPA. Prosecution was handled by Assistant U.S. Attorney Tim Vavricek and Trial Attorney Matthew Hoffman. Case file: 16-CR-2002. Court records: https://ecf.iand.uscourts.gov. Follow @USAO_NDIA for updates.