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Paybooks' owner allegedly failed to pay more than $2 million of customers' taxes

ROCHESTER, N.Y. -- Yesterday, Attorney General Andrew M. Cuomo announced that his office has reached an agreement with state and federal tax entities to provide special assistance to help area business owners defrauded by Paybooks, a Rochester-based payroll company.

The developments are the latest in Cuomo's ongoing investigation into now-defunct Paybooks, Inc. and its president Jeffrey Sykes. In 2009, Cuomo's office filed a lawsuit against the company over its failure to forward more than $2 million in client payments to tax authorities, causing hundreds of local businesses to be subjected to tax penalties and interest. New York State Division of Tax and Finance and the Internal Revenue Service (IRS) have indicated that, on a case-by-case basis, they may waive certain penalties and interest payments on penalties for these consumers. Both the IRS and the State Division of Tax and Finance have assigned dedicated personnel to assist businesses in dealing with their tax issues because of Paybooks' alleged fraud.

"The owner of this company allegedly pocketed money meant to pay the taxes of hundreds of small businesses throughout the Rochester region," said Attorney General Cuomo. "Now, it is tax time, and many of these businesses are having problems trying to figure out their actual tax liability. We have now coordinated with the State Department of Taxation and Finance and the IRS to help guide these businesses through the tax system, so they will not be victimized a second time."

For assistance, the IRS helpline in Rochester can be reached at 585-262-1130. The numbers for the New York State Department of Taxation and Finance's Business Liability Resolution Office are 866-697-2499 or 518-485-0384. The Attorney General's office has updated its Web page dedicated to the Paybooks case, www.ag.ny.gov/features/paybooks/about.html, where businesses affected can get the most up-to-date information about the case.

As of March 1, 2010 the Attorney General's Office has received complaints from 385 of the client businesses, totaling at least $1.81 million.

Paybooks provided payroll services to approximately 1,100 small businesses in the greater Rochester area. In May 2009, Cuomo's Office began receiving complaints from business owners regarding Paybooks' failure to file federal and state withholdings and unemployment taxes, with some unpaid taxes dating back to the Third Quarter of 2008. A subsequent investigation by the Attorney General found that Sykes used his customers' money for personal and operating expenses when he should have been forwarding it to governmental agencies as payroll tax payments. He then paid the various taxing entities out of "new money" being withdrawn from the accounts of other customers. Similar to a Ponzi scheme, over time, the "new money" was not sufficient to cover the taxes.

When filing the lawsuit in 2009, Attorney General Cuomo also obtained a court order freezing the assets of Paybooks, located at 595 Blossom Road in Rochester and Sykes, of Lime Kiln Road in Wayland.

Attorney General Cuomo urges any consumers or business owners who believe they may have been defrauded by Sykes, Paybooks, or any other business to file a complaint with his Rochester Regional Office, available at www.ag.ny.gov/bureaus/consumer_frauds/pdfs/complaint_forms/rochester_complaint.pdf .

The matter is being handled by Assistant Attorney General-in-Charge of the Rochester Regional Office Debra Martin under the supervision of Deputy Attorney General for Regional Affairs J. David Sampson.