New Crackdown Launched : Plastering Firm Officials Named in Tax Evasion Case

Launching a new crackdown on tax evasion in Southern California’s construction industry, the Orange County district attorney--on behalf of the state Employment Development Department--filed criminal charges Thursday against three officers of an Anaheim plastering company.

Thomas E. Hendrickson, president of Canyon Plastering Inc.; Mary L. Perkins, secretary and chief financial officer of the company, and Vice President Brian Millikin have agreed to appear at 9 a.m. this morning for arraignment in North Orange County Municipal Court, according to Deputy Dist. Atty. Michael W. Nunn.

“They all face possible state prison sentences,” Nunn said. A total of 15 charges were filed against Hendrickson, 44 against Perkins and 34 against Millikin. All of the charges involved felony and misdemeanor violations of the California Unemployment Insurance Code.

Specifically, the company’s officers are accused of failing to withhold deductions for state income tax from cash payments to employees and for failure to make the employers’ payment to the state disability and unemployment insurance funds. The complaint does not specify the amount of damages. But an auditor for the Employment Development Department said that Canyon Plastering, which does stucco work on housing tracts and commercial buildings, owes between $100,000 and $200,000 to the state for those alleged delinquencies.

Investigators said the cash payments began in late 1983 and involved more than 100 employees.

The seizure of Canyon Plastering’s records was prompted by a tip from a former bookkeeper and payroll clerk for the company who, in an affidavit supporting the request for a search warrant, said that she had seen cash counted and put into employees’ pay envelopes along with payroll checks. She also said in the affidavit that the hours employees worked for cash were recorded separately from regular payroll hours.

‘No Comment’

Hendrickson, reached by telephone at his office Thursday, said he would make “no comment” on the charges. Perkins and Millikin could not be reached. James D. Riddet, an attorney representing the three, said: “We don’t have any reaction at this time. We haven’t seen the complaint.”

Loren Ferguson, who headed the EDD investigation, said that his department will share the information it has acquired with other state and federal taxing and regulatory agencies, which may file additional criminal or civil charges against the firm.

For the past eight months, there have been efforts to revive the Interagency Construction Enforcement (ICE) program, a cooperative attempt among state agencies and the Internal Revenue Service to stem the so-called “underground economy” of unreported and untaxed income in the construction industry.

According to a study by the state Commission on California State Government Organization and Economy (known as the Little Hoover Commission), “self-employed persons and employers and employees who pay or receive cash for work performed or for goods sold” without paying taxes account for up to $40 billion in otherwise legal business transactions.

And the construction industry was identified as a prime offender.

Thursday’s action against Canyon Plastering highlights ICE’s latest emphasis on filing criminal charges against contractors involved in cash payments. Edwin Sullivan, deputy director of EDD’s Employment Tax Branch, said that criminal prosecution “has the opportunity to bring with it the publicity that will show to people who are tempted to resort to this sort of thing that it is dangerous, that they are going to get caught.”

Last November the state filed criminal charges against two painting contractors in Northern California. But the criminal filing against Canyon Plastering is the first in Southern California. On Thursday, EDD reported it was already investigating another case in Riverside.