Florida Duo Sentenced After $38M Off-the-Books Payroll Scheme Unravels

For years, a hidden payroll operation moved through Florida’s construction industry like a shadow system.

On paper, everything looked like business as usual. Contractors and subcontractors wrote checks. Shell companies cashed them. Workers got paid.

But behind the scenes, federal prosecutors say, the system was designed to keep entire workforces off the books.

• No proper payroll reporting.

• No required tax withholding.

• No clean employment records.

And, ultimately, more than $38 million in payroll tax losses to the United States.

According to the Department of Justice, Iris Villafranca and Osman Donaldo Zapata were sentenced in April 2026 for their roles in a years-long off-the-books cash payroll scheme that helped construction contractors pay workers in cash while avoiding required employment taxes. Villafranca was sentenced to 204 months in federal prison, while Zapata received 51 months.

How the Payroll Scheme Worked

From 2015 through 2022, Villafranca, Zapata, and others used a series of shell companies to operate what prosecutors described as an unlicensed check-cashing and cash courier service. Those shell companies cashed approximately $89 million in checks from construction subcontractors, charging a fee based on the dollar amount of the checks.

The cash was then used by contractors to pay workers off the books.

That meant workers were allegedly paid without proper payroll reporting, without required tax withholding, and without the normal paper trail that comes with legitimate payroll. According to the DOJ, the arrangement also facilitated the employment of undocumented workers who were not legally authorized to work in the United States.

In simple terms, the scheme created a shortcut around the payroll system.

But shortcuts around payroll taxes can become federal criminal cases.

The Tax Loss Was Massive

Payroll taxes are not optional. Employers are generally responsible for withholding and paying employment taxes, including federal income tax withholding, Social Security, and Medicare taxes.

When payroll goes underground, the IRS does not just see missing paperwork. It sees unpaid taxes, false filings, and potential fraud.

In this case, prosecutors said the scheme caused a tax loss of more than $38 million. Villafranca was ordered to pay more than $38 million in restitution to the United States and forfeit $89 million in criminal proceeds. Zapata was ordered to pay more than $2.5 million in restitution.

One co-conspirator, Francisco Alvarez, was previously sentenced to four years of probation and ordered to pay more than $2.3 million in restitution. Another member of the conspiracy was scheduled for sentencing in June.

The Scheme Did Not Stop at Payroll Taxes

The case also involved workers’ compensation insurance fraud.

According to IRS Criminal Investigation, Villafranca and Zapata defrauded workers’ compensation insurers by leasing certificates of insurance to contractors and submitting false information about the number of workers covered and the amount those workers were paid.

That matters because workers’ compensation premiums are often based on payroll, job classifications, and risk exposure. If a company hides workers or underreports payroll, it can lower insurance costs unfairly while shifting risk onto workers, legitimate competitors, insurers, and taxpayers.

For honest business owners, this kind of scheme creates an uneven playing field. Companies that follow the rules are forced to compete against contractors who may be cutting costs by avoiding payroll taxes, insurance obligations, and employment reporting requirements.

False Tax Returns Added to the Trouble

Villafranca also pleaded guilty to filing false individual income tax returns for tax years 2019 through 2022. Prosecutors said those returns failed to report all income she earned from the scheme, as well as rental income from real estate she owned.

That is an important reminder: payroll tax schemes can create multiple layers of tax trouble. A case may start with unpaid employment taxes, but investigators may also look at individual income tax returns, business filings, banking records, insurance documents, and any other paperwork connected to the money trail.

Once IRS Criminal Investigation gets involved, the issue is no longer just a “bookkeeping problem.”

Why Business Owners Should Pay Attention

This case may sound extreme, but the lesson applies to businesses of all sizes.

Paying workers “under the table” may seem like a quick fix during a cash crunch. Some business owners may think they are helping workers take home more money, avoiding administrative headaches, or staying competitive in a tight labor market.

But payroll tax problems can become serious quickly.

The IRS takes employment tax compliance seriously because payroll taxes include money withheld from employees’ wages. When those taxes are not properly reported or paid, the government may pursue the business and responsible individuals and, in certain cases, bring criminal charges.

Even when a case does not rise to the level of criminal prosecution, unpaid payroll taxes can lead to:

• Wage garnishments
• Bank levies
• Federal tax liens
• Business asset seizures
• Trust fund recovery penalties
• Personal liability for responsible parties
• Serious penalties and interest
• Long-term damage to the business

The longer payroll tax problems go unaddressed, the more expensive and stressful they usually become.

What If Your Business Has Payroll Tax Problems?

Not every payroll tax issue is fraud. Many business owners fall behind because of cash flow problems, poor bookkeeping, rapid growth, employee turnover, or misunderstanding their obligations.

But ignoring the problem is dangerous.

If your business has unpaid payroll taxes, unfiled employment tax returns, misclassified workers, or a history of cash payroll, it is important to get professional help before the IRS escalates enforcement.

At IRS Trouble Solvers, we help business owners understand their IRS situation, respond to notices, and work toward resolution options when tax debt has become overwhelming.

The Bottom Line

The Florida off-the-books payroll case shows how serious employment tax violations can become. What began as a hidden cash payroll system ended with federal prison sentences, tens of millions in restitution, forfeiture orders, and lasting consequences for everyone involved.

For business owners, the message is clear: payroll taxes cannot be pushed into the shadows forever.

If you are behind on payroll taxes, have received IRS notices, or are worried about how your business has handled worker payments, now is the time to act.

IRS Trouble Solvers helps businesses face tax problems head-on before they spiral further out of control. If payroll tax debt, IRS notices, or employment tax issues are keeping you up at night, contact us today for help finding a path forward.