Richard Bondurant built his small heating and plumbing repair business in Media guided by a few simple principles: Keep your word, do right by your employees, and always pay your debts on time. That served him well for 35 years.
Then, the IRS came calling.
In 2015, Bondurant discovered that the firm he hired to handle his company’s payroll taxes — Delaware County-based Payroll Professionals Inc. — had failed to make payments for years. Although the money had been regularly drawn from his accounts, federal tax collectors now insisted he owed more than $200,000 in unpaid taxes, interest, and penalties. They demanded he pay up at once.
“I didn’t understand,” said Bondurant, 64. “I already paid the money. I did everything I was supposed to do.”
And he wasn’t alone. In what one federal prosecutor described as “one of the most extreme abuses of trust” he has seen, Payroll Professionals Inc. and its owner, Myles Hannigan, stole from dozens of small businesses, nonprofits, and corporations across the Philadelphia region between 2009 and 2015, leaving them stuck with millions of dollars in sudden tax debts quietly amassed over years.
The victims range from a Philadelphia animal shelter, a food bank in Chester, a suburban Roman Catholic parish, and Mural Arts Philadelphia to scores of small, family-run businesses whose owners are all now struggling to survive the devastating financial consequences.
Some, like Bondurant, have had to postpone retirement. Others have laid off employees or shuttered their firms. And still more have dipped into personal finances to pay off their crippling debts. The financial black hole grew so overwhelming for West Chester insurance broker Albert Tegler Jr., according to his family, that the 77-year-old suffered a stroke and eventually died.
“I’m not the same person I was before all this,” said Kevin McFadden, the owner-operator of a Glenolden construction company. “I spend all my time with lawyers and accountants. ... I just feel helpless.”
But as much as they consider themselves victims of Hannigan, Bondurant, and the others now say they are being victimized again — by an unforgiving IRS and lawmakers in Washington who have repeatedly watched as crimes like Hannigan’s occurred without enacting reforms that might have prevented them.
Hannigan is serving a four-year sentence after pleading guilty to tax fraud and other charges. But affected business owners say they’ll be dealing with the fallout long after his release.
“He’s [in] jail,” Bondurant said. “But we’re still trapped in prison.”
The multibillion-dollar third-party payroll processing industry owes its existence to the thousands of business owners nationwide who don’t have time, staffing, or interest in calculating and paying the necessary federal, state, and local tax withholdings on their employees’ earnings.
Millions of American workers receive paychecks cut through these independent contractors. And when working as they should, payroll processors free up companies to focus on more central aspects of their businesses.
The IRS makes clear on its website that in the event of a default, employers “remain liable for unpaid taxes.” Still, it was his clients’ desire to outsource those aspects of their businesses that allowed Hannigan, 48, of Newtown Square, to perpetrate his crimes for so long.
The first public signs of trouble emerged in 2015, when Aston Township, which had contracted with Payroll Professionals Inc. for nearly a decade, sued Hannigan over a nearly $300,000 delinquency notice it received from the IRS. The suit was dropped as Hannigan, chalking it up to a mistake, quickly repaid the debt.
But only Hannigan knew at the time that the money had come from the tax withholdings of another client Mardinly Enterprises, an engine repair and maintenance company, that employs about 50 workers in Broomall.
The company’s owner, David Mardinly, began receiving delinquency notices from state and federal taxing authorities shortly after. And just as he had done with Aston, Hannigan dismissed it as a temporary oversight and promised to promptly resolve the issue.
But this time the tax collectors kept coming. Mardinly reported Hannigan to the IRS.
Only after an investigation that took years did the scope of Hannigan’s crimes and the number of victims become clear.
“He had basically been playing a shell game for years,” Mardinly said. “He was running a Ponzi scheme.”
Taking advantage of loopholes within the IRS’s payment system, Hannigan routinely stole from one client to pay the tax obligations of another. To avoid detection, he would change addresses on file with the IRS so that delinquency notices came to his offices in Media instead of to the businesses that were on the hook for the debts. He forged “power of attorney” letters, giving him greater control over his clients’ money.
And, exploiting a feature of the IRS system designed to allow payroll processors to easily correct their own mistakes, Hannigan would routinely deposit money into clients’ IRS accounts, making it appear as if their bills had been paid — only to take it back out again.
Federal prosecutors stopped counting by the time they had tallied nearly $3.3 million in losses and 35 victims, saying it was enough to charge Hannigan.
But those crimes, Assistant U.S. Attorney Jason Bologna wrote in court filings, “cannot be measured solely by numbers” and can only be understood through the “tremendous price” paid by his victims. Nowhere was that sentiment more clear than at Hannigan’s sentencing hearing last month.
Dozens of business owners packed U.S. District Judge Chad F. Kenney’s sixth-floor courtroom in Center City to vent their outrage over the damage Hannigan had done to their companies and their careers.
Sister Sandra Lyons, director of the Bernardine Center food pantry in Chester, told the court she could have provided more than 412 meals to low-income individuals — some 8,000 pounds of food — with the $13,281 tax obligation Hannigan left her owing.
At St. John Fisher Catholic parish in Upper Chichester, parishioners filled the collection plate to cover their church’s $60,000 debts, its lawyer Nelson J. Sack said.
Others, like Bob Gress, who runs a heating and air-conditioning repair company in West Chester, wrote letters to the judge. Gress had been friends with Hannigan since high school. They’d served in each other’s wedding parties and vacationed together with their families.
Their bond didn’t stop Hannigan from ripping him off, too. He left Gress with an outstanding $750,000 tax bill.
“I was a trusting person by nature," Gress said. "Myles has ruined that for life.”
But it was the children of Albert Tegler — the West Chester insurance broker who died earlier this year under the strain of his debts — who elicited tears in the gallery.
“It was all too much for him,” said Tegler’s son Tom. “The stress caused his heart to explode." Then, turning to Hannigan, he added: "I want you to carry that with you.”
For his part, Hannigan blamed his alcohol addiction and turned to the crowd to apologize shortly before he was escorted off to prison.
“I don’t have a defense for what I did to all of you,” he said. “But I will work as hard as I can, to do as much as I can, to make every person in this room whole.”
Few are holding their breath. Normally, federal authorities might move to liquidate ill-gotten assets of a defendant like Hannigan and use the money to fulfill the $3.2 million he has been ordered to pay back to his victims.
But prosecutors say they haven’t been able to figure out what Hannigan did with any of the missing funds. Although he lives in a 5,500-square-foot, $971,000 home in Newtown Square and sends his children to private school, he claims he is now nearly destitute, and he was represented in court by a public defender.
Meanwhile, the same government that paid for Hannigan’s lawyer continues to come for his victims.
A spokesperson for the IRS declined to discuss efforts to collect from Hannigan’s victims, saying the agency was barred from discussing individual taxpayer accounts.
But in interviews with The Inquirer, dozens maintained they had been treated hostilely and repeatedly given wrong information by tax collectors about how much they will have to pay and how to resolve their debts.
Although most victims praised the IRS’s law enforcement wing for putting Hannigan behind bars, the agency’s collections arm is a separate division, and even sympathetic federal investigators and prosecutors have been unable to do much to alleviate the victims’ plight.
Some say they were instructed during the investigation not to fire Hannigan so agents could continue collecting evidence against him — a holding pattern that went on for years as their tax debts, interest, and penalties grew.
“They watched all this time as 100 different businesses got defrauded and interest was adding up,” said Bondurant, owner of the Media heating and plumbing repair firm. “This case was a money-maker for the IRS.”
Madeline and David Butler, who run a Yeadon-based event production company, reject an accusation they say was lobbed at them by one tax collector, who despite Hannigan’s crimes suggested they should have kept better watch on what he was doing with their money.
They sat in Hannigan’s office on the phone with the IRS after receiving their first delinquency notice in 2015 and watched to make sure he moved money into their company’s tax account to satisfy their debts.
Before hanging up, they confirmed with the IRS that they were no longer in arrears. Only later, after receiving more orders for payment of back taxes, did they discover that Hannigan had pulled the funds right back out again moments after they left.
“We weren’t just trusting Myles with this,” Madeline Butler said. “We asked the IRS to assure us that everything was OK. Now, somehow, this is our fault? This can’t be the way this runs.”
But if dozens of payroll processing fraud cases similar to Hannigan’s that have emerged in recent years prove anything, it is far from uncommon. Many used the same techniques as Hannigan to avoid detection.
And although bills have been put forth in Washington and more than a dozen states, including Pennsylvania, calling for further regulations like licensing or bonding for third-party payroll processors, nearly all have failed.
Bill Dunn, director of government relations for the American Payroll Association, said he’s sympathetic to the victims of such payroll processor frauds. But his organization is opposed to onerous new requirements on an industry primarily made up of honest business owners.
“The industry is already regulated,” he said. Third-party payroll processors are federally required to register with the IRS and undergo background checks. "This isn’t the Wild West.”
Dunn pointed to Maine, the only state that requires all third-party payroll processors to be bonded, ensuring that if they default, their victims’ debts will be covered. The law has prompted several payroll processors to shut down or leave the state, Dunn said, and forced regulators to lower the bond requirements.
“Most of these are not large companies; they’re small businesses,” Dunn said. “We don’t want the cost so high that payroll providers can’t afford to stay in business.”
But Gress, the West Chester heating and air-conditioning repairman, wonders where that leaves him. He’s a small business owner, too — facing a $750,000 tax debt that he thought he already had paid.