Tax Law Center Blog

Despite major budget cuts and layoffs, the Internal Revenue Service Criminal Investigation (IRS-CI) division continues to demonstrate its proficiency in untangling complex “off-the-books” financial arrangements. A recent case out of Massachusetts involving John Michael Sacco, the former owner of JMS Contracting, highlights the severe consequences awaiting business owners who attempt to bypass the tax system through check-cashing schemes and unreported gross receipts.

Case Overview: The Architecture of Evasion

Between 2014 and 2021, Sacco managed construction projects, receiving over $9 million in payments from customers. Rather than adhering to standard accounting practices, the defendant engaged in a multi-year effort to conceal the business’s true economic activity. The scheme involved several critical failures of compliance:

• Check Cashing and Commingling: Instead of depositing customer checks into business bank accounts, which creates a transparent paper trail, Sacco cashed the majority of these payments.
• Unreported Gross Receipts: By diverting funds directly to cash, the defendant systematically underreported the business’s gross income.
• Failure to Document Subcontractor Payments: The defendant used the cash proceeds to pay subcontractors and purchase supplies. Critically, he failed to issue required information returns (such as Form 1099-NEC) to these subcontractors or file the corresponding records with the IRS.
• Non-Filing and Underreporting: For several years, the defendant failed to file personal income tax returns entirely, and in other years, filed returns that significantly underreported his tax liability.

Sentencing and Restitution

On January 8, 2026, U.S. Senior District Court Judge Patti B. Saris sentenced Sacco to six months of home confinement and three years of supervised release. Sacco was ordered to pay $3,059,887 in restitution to the IRS.

While the term of incarceration was mitigated to home confinement, the financial impact—including the full repayment of the tax loss plus likely interest and civil penalties—represents a catastrophic outcome for the business owner.

Legal Implications for Tax Professionals

This case underscores several key areas where tax practitioners must remain vigilant when advising clients in the construction and general contracting sectors:

1. IRC § 7201 (Tax Evasion): The government must prove an affirmative act of evasion, a tax deficiency, and willfulness. In this case, the deliberate act of cashing checks to avoid a bank record provided the “affirmative act” necessary for a felony conviction.
2. Information Reporting Compliance: Failure to report payments to subcontractors is often a “red flag” for IRS-CI. Compliance with IRC § 6041 is not merely an admin requirement; it is a primary tool the IRS uses to track the flow of income in the “gig” and construction economies.
3. The Risks of Voluntary Disclosure (VD): For clients with similar patterns of non-compliance, the window for a Voluntary Disclosure closes the moment the IRS begins a civil examination or criminal investigation. (A timely VD could have saved Sacco).

Protecting Your Clients

When a client’s business practices involve high volumes of cash or informal payment structures to subcontractors, the risk of an IRS-CI referral is substantially elevated. Proactive legal intervention is essential to mitigate criminal exposure and navigate the complexities of a tax investigation.