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Restaurant Owner Gets One Year in Prison for Tax Fraud Involving Undocumented Workers

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The owner of five Phoenix-area Mexican restaurants was sentenced to a year and a day in prison on Monday for tax fraud related to her hiring of undocumented workers.

Isamary Diaz, 56, began Armando's Mexican Food restaurants with her husband in 1986, later running the businesses herself after their divorce. She began submitting fraudulent tax forms in 2009 that under-reported the restaurants' true payroll taxes in order to conceal the hiring and employment of illegal workers, according to the Arizona U.S. Attorney's Office, which handled the prosecution of the case.

Authorities caught up to her in 2013, accusing her of failing to pay more than $288,000 in taxes over four years, paying her undocumented workers less than minimum wage, and also failing to pay them overtime. The sentence by U.S. District Judge Douglas Rayes requires Diaz to repay the back taxes to the Internal Revenue Service, plus another $89,919 to the Department of Labor for the employees who were shorted.

Diaz pleaded guilty in April to willful failure to collect or pay tax, and failure to pay minimum wage.

Diaz remains free on her own recognizance; the U.S. Attorney's Office could not immediately provide the date that she must turn herself in.

Reached at home, Diaz and her daughter, Vanessa, had no comment for this story.
Diaz employed both legal and illegal workers at the restaurants, but the undocumented employees were paid in cash. As the evidence showed, Diaz paid those workers their full wages without withholding any taxes. An accountant, using information Diaz provided, prepared biweekly payroll reports for the IRS that omitted the cash employees from the ranks of workers, reducing what the company had to pay in payroll-tax expenses.

Between 2011 and 2014, she reportedly employed at least 15 undocumented workers at the restaurants and didn't pay them the minimum wage of $7.25 an hour.

"The defendant knew that undocumented employees were unlikely to complain about substandard wages and working conditions," records state.

A statement her lawyer prepared for the court before the sentencing hearing describes how Diaz played a role in bringing undocumented Mexican workers into the country.

Occasionally, people would let Diaz know that a friend or family member in Mexico wanted to come to the United States and get a job.

"When she said yes, the employee would ask Ms. Diaz to borrow the money needed to bring the person to the U.S.," attorney Neil Labarge wrote to the court. "A few weeks later, the person would show up and begin to work, and pay off the money borrowed, with no interest, over a few months' time. The percentage of such persons working for Ms. Diaz was small out of all her employees."

Labarge downplays the accusation that Diaz helped smuggle workers into the country and pointed out that Diaz didn't use threats or coercion on the undocumented employees. He asked the judge to view the case as simply one of failing to pay taxes and overtime. The employees actually made more than minimum wage, because their gross pay wasn't docked 15 percent for federal tax withholding, and the workers probably didn't pay federal taxes, he argued. He added that the workers ate a lot of free food at the restaurants that adds up to about $30,000 of the $89,919. Diaz just wanted to point that out, LaBarge wrote, and isn't complaining.

Diaz quit working in 2013 to take care of her elderly mother, and has since hired managers to run her restaurants.

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