William Skaggs Jr., the owner of Nastar Roofing, was handed a three-year federal prison sentence on Monday for conspiring to defraud the United States by failing to pay employment taxes on millions in wages.

According to federal court records, his office administrator, Billie Adkison, who managed payroll, was not spared either, receiving a sentence of one year plus one day. Each defendant faced as many as five years in prison.

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It's the coda to a story initially reported last fall after federal prosecutors alleged the pair spent a decade compensating employees — mainly in cash — by withdrawing over $21 million from the company's bank accounts without withholding Social Security, Medicare or federal income taxes. 

The scheme, which the government asserted took place between 2013 and 2023, also used a payroll provider to issue paychecks that concealed off-the-books wages, resulting in false employment tax returns and nearly $2.5 million in lost revenue for the IRS. 

The pair pleaded guilty to conspiracy charges on Nov. 7, 2024. 

"This case underscores the serious legal consequences of payroll tax noncompliance, particularly in roofing where cash payments are common," said RC's Legal Insights columnist Trent Cotney, a partner at Adams and Reese LLP and chair of its Construction practice. 

"While many contractors don’t intend to defraud, relying on informal or off-the-books payroll practices can lead to criminal liability," he continued.

Cotney noted that strong internal controls and access to advisors like CPAs and lawyers who can help contractors stay within legal boundaries are always best practices: "Early guidance is far less costly than federal prosecution," he added.

Earlier in the investigation, which began in March 2024, federal agents executed a warrant at the company’s Cape Coral, Fla., office, gathering documents in a lengthy operation that underscored the seriousness of the suspected tax evasion. 

In addition to their prison terms, U.S. District Judge Sheri Polster Chappell ordered both defendants to serve three years of supervised release, with restitution to be determined at a later date. 

Federal prosecutors emphasized that Skaggs and Adkison knowingly signed fraudulent tax returns to skirt their legal obligations. 

5 Takeaways

Paying employees cash is legal but must be done correctly to avoid IRS scrutiny. Here are five key things to keep in mind:

1. Proper Documentation: Maintain accurate payroll records, including pay stubs, hours worked, and tax withholdings, just as you would for direct deposits or checks.
2. Withhold and Remit Taxes: Cash payments still require withholding and remitting payroll taxes (income, Social Security, and Medicare). Failure to do so can lead to tax fraud charges.
3. Report All Wages: Report cash wages to the IRS using Form W-2 for employees and Form 1099-NEC for independent contractors, ensuring compliance with tax laws.
4. Follow Minimum Wage and Overtime Laws: Cash payments must comply with federal and state labor laws, including minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA).
5. Use a Payroll System or Accountant: Keeping detailed records and working with a payroll provider or accountant can help ensure compliance and prevent unintentional tax violations.

The sentencing essentially concludes a case that has garnered significant attention in the region, reinforcing federal efforts to combat tax fraud in the construction industry.