An Iowa businessman who owned several waste management companies and a landfill in the Midwest owes the federal government more than $30 million dollars after years of exploiting the payroll tax system, federal records show.
According to federal court documents filed by the Internal Revenue Service in U.S. District Court for the Southern District of Iowa, James L. Watts, president of Watts Trucking Service Inc. in Davenport, Iowa, failed to meet federal tax requirements since at least 1990 by “pyramiding” employment and unemployment taxes, meaning his companies deducted payroll taxes from employees even though they had no intention of paying the IRS.
Watts’ attorney James Monroe declined to comment on the case because it’s ongoing. An IRS spokesperson in Iowa also declined to comment on the proceedings.
Watts started at least 23 different companies, with many of them guilty of tax violations, documents say.
The defendant companies, along with 15 inactive businesses, owe the U.S. Treasury more than $30 million, according to court records.
Since traditional methods of collection haven’t worked, the IRS is seeking a court injunction to make Watts “conduct business like every other tax-paying business in the country,” the document says.
Watts Trucking is the parent company for the defendants, which include Cedar Valley Recycling Inc., County Waste Systems Inc., A-1 Disposal Service, Inc., Black Hawk Waste Disposal Co., Inc., Hawkeye Waste Systems Inc., LMWaste Systems Inc., Metro Waste Systems LLC, City Waste Systems LLC and Tri-Star Waste Systems Inc. These companies are located in Iowa, Nebraska, Missouri and Tennessee.
Of Watt’s 15 defunct businesses, 11 had accumulated debts of at least $1 million.
The documents show Star Disposal Systems Inc. owes the most with $4.1 million; Texas Waste Systems Inc. is still on the hook for $3.5 million; debt for Watts Freight Systems Inc. grew to $3.3 million; and Central Waste Systems Inc. has $2.2 million in outstanding payments.
Seizing the land of those companies wouldn’t help the IRS recoup the lost revenue, the document states, because most of the land is either contaminated or hampered by state tax liens.
By not paying payroll taxes, the documents say, the Watts’ companies have had an unfair advantage because they can benefit from the same amount of labor as their competitors while having smaller expenses.
The injunction will “protect the public’s interest in fair competition” by “effectively leveling the playing field,” according to the complaint.
“Due to the extremely large amount of tax liabilities owed by the Employer Defendants and Watts’ inactive entities, the United States will likely never recover the lost revenue caused by their pyramiding of employment taxes,” the document states.
On at least two occasions, the documents says, Watts, in an effort to block IRS collection attempts, pyramided federal employment taxes and covered his tracks by transferring assets from one company to another.
For example, documents show that in January 2009, Watts’ nephew Jeffrey began operating Central Waste Disposal Systems under the name City Waste Systems because Central owed more than $2 million dollars in employment taxes and had received several IRS levy warnings.
In the other instance, James Watts transferred assets from Metro Waste Systems Inc. to Metro Waste Systems LLC, which is reportedly run by Donald Russell, a former manager at Metro Waste Systems Inc., in April 2010.
Federal documents show that Metro Waste Systems Inc. was still responsible for $1.2 million in employment taxes at the time of the transfer.
The injunction will require Watts’ businesses to sign and deliver affidavits to an IRS officer on the first of each month stating that payroll tax deposits were made in a timely fashion.