New York Rep. Michael Grimm pleads guilty to felony tax evasion

NEW YORK (WABC) -- New York Rep. Michael Grimm on Tuesday pleaded guilty to one count felony tax evasion in his fraud case in federal court in Downtown Brooklyn.

The congressman, who recently defeated Democratic challenger Domenic Recchia to win re-election, was facing a 20-count indictment that included tax evasion, fraud and conspiracy. He was also charged with perjury and obstruction for allegedly lying in a civil case.

His trial was supposed to begin in February.

Grimm is expected to claim that he can continue serving, although he said during the campaign that he would step down from his seat if he was "unable to serve." House Republican leaders can decide whether to force him to resign.

The single tax-evasion charge could carry a maximum of three years in prison, but as a first-time offender, he could avoid prison time. It will be up to the sentencing judge.

In connection with his guilty plea, Grimm entered into a stipulation of facts, filed with the court, that acknowledged the scope of his criminal conduct. As part of that stipulation of facts, Grimm admitted that:

--From 2007 through 2009, Grimm was a member in Healthalicious, a restaurant located in Manhattan. During that time period, Grimm oversaw the day-to-day operations of the restaurant, which included the reporting and distribution of the restaurant's payroll.

--Grimm under-reported the true amount that Healthalicious earned, using a portion of those unreported receipts to pay the restaurant's workers off the books in cash. With Grimm's knowledge, the restaurant employed those who were not lawfully admitted to the United States and who were not authorized to work in this country.

--In total, Grimm concealed over $900,000 in Healthalicious' gross receipts from the accountant who prepared and filed the restaurant's tax returns. That accountant used the false information provided by Grimm to prepare and file false federal and state tax returns for Healthalicious.

--Grimm also failed to report the off the books cash wages he was paying to Healthalicious workers, which resulted in the restaurant paying lower federal and state payroll taxes. Some Healthalicious employees received at least half of their wages in cash, while other workers were paid entirely in cash. Grimm tracked these payments in electronic spreadsheets, but failed to provide accurate information about the restaurant's payroll to the payroll processing companies employed by the restaurant. As a result, Grimm caused the payroll processing companies to report to the IRS and the NYS Tax Department less than half of the wages Healthalicious actually paid its employees.

--Additionally, Grimm under-reported Healthalicious' payroll to the New York State Insurance Fund ("NYSIF", lowering the monthly workers' compensation premium the restaurant paid to NYSIF.

--As part of his scheme, Grimm caused numerous false documents to be filed with federal and state tax authorities between 2007 and 2010, including: (1) Form 941 Employer's Quarterly Federal Tax Returns for Healthalicious; (2) Form 1065 U.S. Return of Partnership Income tax returns for Healthalicious; (3) Forms W-2 reported annual wages of Healthalicious employees; (4) his Form 1040 U.S. Individual Income Tax Returns and Form IT-201 Resident Income Tax Returns; and (5) New York State Form ST-100 Quarterly Sales and Use Tax Returns.

--In total, Grimm's conduct caused federal and New York State tax and NYSIF premium losses between $80,000 and $200,000.

The Democratic Congressional Campaign Committee said in a statement Tuesday it was "past time for Michael Grimm to go," calling his continued presence in Congress "a disservice to the people of Staten Island and Brooklyn and a stain on the institution." The DCCC and House Minority Leader Nancy Pelosi, D-Calif., called on House Speaker John Boehner, R-Ohio, to ensure Grimm's departure.

Boehner doesn't plan to comment on Grimm's situation until the two discuss it, Boehner spokesman Michael Steel said.

If he refuses to resign, it would take a rare vote by his fellow lawmakers to expel him from the House. The last member to be expelled was James Traficant, D-Ohio, who was kicked out of Congress in 2002.

According to an indictment, the tax fraud began in 2007 after Grimm retired from the FBI and began investing in Healthalicious. The indictment accused him of under-reporting more than $1 million in wages and receipts to evade payroll, income and sales taxes, partly by paying immigrant workers, some of them in the country illegally, in cash.

The case stemmed from an investigation of Grimm's campaign financing. He was never charged with any offense related to his campaign, but a woman romantically linked to him pleaded guilty in September to lining up straw donors for his 2010 run.

Grimm, 44, made headlines in January after telling a local cable TV news station reporter he wanted to throw the journalist off a balcony in the Capitol for asking about the campaign finance inquiry.

An independent advisory office recommended that the House Ethics Committee investigate the balcony incident. The ethics panel deferred its investigation into Grimm while the Justice Department case was ongoing.

If Grimm doesn't resign, the panel is sure to address the case next year.

Sentencing is set for June 8.
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