Nursing Home Tax Fraud: Joseph Schwartz, a New York insurance broker and former operator of a multistate nursing home chain, has pleaded guilty to charges connected to a $38 million employment tax fraud scheme. Prosecutors revealed that Schwartz withheld employment taxes from employees of his company, Skyline Management Group LLC, but failed to pay them to the IRS.
A Complex Web of Financial Misconduct
U.S. Attorney Philip R. Sellinger described Schwartz’s actions as a calculated effort to defraud taxpayers. “Schwartz ran a vast, multistate nursing home empire, but cheated taxpayers out of more than $38 million so he could line his own pockets. Having admitted his crime, he will now be held accountable,” Sellinger said.
Skyline, headquartered in New Jersey, operated health care and rehabilitation facilities across 11 states. Schwartz financed the rapid expansion of his business by selling his insurance company for $22 million. In addition to the sale proceeds, Schwartz secured an employment contract with the buyer, granting him a $300,000 annual salary and commission rights for insurance policies sold to Skyline-owned facilities.
As Skyline grew, Schwartz profited significantly by selling more policies, earning increasing commissions from the insurance buyer. To facilitate operations, he created staffing and management services entities for roughly 15,000 employees working at Skyline facilities. In 2018, he transferred employees from 89 facilities into seven staffing companies, each corresponding to a state where Skyline operated. Despite nominal ownership by others, Schwartz controlled the finances of these companies.
Misuse of Employee Withholdings
Between October 2017 and May 2018, Schwartz withheld taxes from employee paychecks but failed to remit more than $38 million in employment taxes to the IRS. Instead of fulfilling his legal obligation, Schwartz diverted the funds for personal use and to cover unrelated expenses of the staffing companies.
Additionally, Schwartz neglected his duties as administrator of Skyline’s 401K retirement plan. Federal law required him to file an annual Form 5500 financial report for 2018 with the Department of Labor, but he deliberately failed to submit the report.
Legal Consequences and Sentencing
Schwartz now faces severe penalties. The employment tax fraud charge carries a maximum sentence of five years in prison and a $250,000 fine, or twice the financial gain or loss associated with the offense. The failure to file the 401K financial report is punishable by up to 10 years in prison and another $250,000 fine.
Sentencing is scheduled for April 10, 2025, in Newark federal court.
Implications for the Healthcare Industry
This case underscores the risks associated with unchecked financial practices in the healthcare sector. Schwartz’s misconduct not only defrauded taxpayers but also jeopardized the financial security of thousands of employees. As legal proceedings unfold, the need for stricter oversight of multistate healthcare organizations becomes increasingly apparent.
For more insights into financial fraud and its impact on the healthcare sector, visit jacobijournal.com.
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