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In a Case of Missing Paychecks, Millions in Taxes Remain Unpaid

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Millions of dollars destined for federal, state and local taxes remain stuck in limbo, more than a month after the collapse of a New York payroll processing firm.

The unpaid taxes are the latest headache for customers of MyPayrollHR and other payroll companies tied to

Michael Mann.

In a criminal complaint filed in September, federal prosecutors charged Mr. Mann with defrauding banks and other financial institutions of about $70 million.

As Mr. Mann and his businesses came under scrutiny, bank accounts tied to his businesses were frozen. As a result, an estimated $30 million deducted from businesses that used his payroll firms didn’t reach employees or tax authorities in early September. The continuing challenges highlight the difficulty of recapturing funds when a payroll processor collapses and even knowing whether required tax payments were made.

An attorney for Mr. Mann didn’t respond to requests for comment. He previously said his client was cooperating with authorities. Mr. Mann hasn’t entered a plea in the case in U.S. District Court in Albany.

Most employees whose companies used MyPayrollHR have been made whole, but tax payments handled by another of Mr. Mann’s firms remain in limbo.

Ed Daugherty,

co-founder of two Fort Lauderdale, Fla., staffing companies, hired an accounting firm to determine whether taxes had been paid in the dozen states where they operate. The current estimate: $68,840 in federal tax payments and more than $40,000 in state and local taxes haven’t been paid. “It’s like a hurricane hit,” said Mr. Daugherty, who spent most of September working to recover employee paychecks.

Sorting things out is particularly difficult because of the number of parties involved in payroll processing and the number of tax authorities. “It has become something of a black hole,” said

James Wright,

co-owner of Bridge Technical Talent, a technology staffing company in North Kingstown, R.I., that figures about $30,000 in taxes the firm owed weren’t paid.

National Payment Corp. said it was unable to access about $4 million in funds destined for tax authorities because the account holding those funds was frozen by Mr. Mann’s bank,

Pioneer Bancorp Inc.

NatPay is one of the firms that handles the flow of tax payments through the ACH Network, used to move funds from one bank account to another.

In some cases, NatPay made required tax payments and then pulled back those payments because funds weren’t available. “National Payment has lost money in this process, as have many businesses and individuals,” NatPay Chairman

George Hamilton

said.

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In an interview, Pioneer Bancorp CEO

Thomas Amell

said the accounts frozen by the bank aren’t set up as payroll accounts or tax accounts. “The assumption being made that Pioneer Bank is in control of tax payment funds or payroll funds, that narrative is misleading,” he said.

Mr. Amell declined to say how much money has been frozen or when funds would be returned. “There is a whole team of forensic accountants and lawyers trying to decode this entire incident,” he said.

In Wisconsin alone, 188 businesses were swept up in Mr. Mann’s troubles, said Peter Barca, secretary of the Wisconsin Department of Revenue. State officials are still trying to determine how many businesses missed October tax payments. The state has told small-business owners it will waive penalties and has been able to reverse the withdrawal of $280,000 in state income tax payments.

“There has been very little information as far as where we should go” to recapture money that didn’t make it to tax authorities, said

Shelly Disterhaft,

controller for Stainless Flow Technologies Inc., a 30-person manufacturer of custom piping and valves in Ripon, Wis.

Ms. Disterhaft discovered last month that $19,000 destined for federal, state and local taxes was apparently stuck in a frozen bank account tied to Mr. Mann. Then, in early October, she learned that $6,600 in state taxes had been paid and then pulled back. The $6,600 pulled out of the account at the start of October was returned last week.

It could be a while before employers are notified that required tax payments weren’t made. The IRS generally matches tax payments submitted by employers against quarterly tax returns and then alerts businesses to any shortfalls, an IRS spokesman said.

The IRS spokesman declined to comment specifically about matters relating to Mr. Mann because of federal privacy rules. Missing tax payments are generally the employer’s responsibility, even if some of the money represents employee withholding, he said.

Some businesses that weren’t MyPayrollHR customers are having tax issues tied to Mr. Mann’s frozen bank accounts. That is because Cloud Payroll, another of Mr. Mann’s companies, processed tax payments for other payroll firms in which he had a financial interest.

For example, Southwestern Payroll Service Inc. estimates that more than $5 million in tax payments for its clients may not have reached their final destination. The Tulsa, Okla., company has about 1,300 customers and remains in business. After Mr. Mann in 2017 took a controlling stake in Southwestern, it began outsourcing tax payments to Cloud Payroll, the company says.

David Rhoades,

who was recently appointed as a receiver for Southwestern, said he has made a formal demand to Pioneer Bank to release customers’ tax funds. Pioneer said it is evaluating Southwestern’s claim.

“It’s a fairly small window” of time that the money wasn’t paid, Mr. Rhoades said, “but it’s a lot of dollars.”

Write to Ruth Simon at ruth.simon@wsj.com

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WeWork May Lay Off Thousands

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WeWork is preparing to cut at least 4,000 people from its work force as it tries to stabilize itself after the company’s breakneck growth racked up heavy losses and led it to the brink of collapse, two people with knowledge of the matter said.

The cuts are expected to be announced as early as this week and will take place across WeWork’s sprawling global operation. Under the plan, the company’s core business of subletting office space would lay off 2,000 to 2,500 employees, one of the people said. An additional 1,000 employees will leave as WeWork sells or closes down noncore businesses, like a private school in Manhattan that WeWork set up. Additionally, roughly 1,000 building maintenance employees will be transferred to an outside contractor. Together, these employees would represent around a third of the 12,500 people WeWork employed at the end of June.

But one of the people said the company could shed as many as 5,000 to 6,000 employees.

The staff reductions will be included in a five-year plan to overhaul WeWork that could be presented to employees as early as Tuesday, said the people, who spoke on the condition of anonymity to discuss the layoff plans.

The layoffs represent the human cost of a remarkable reversal in WeWork’s fortunes. Under its co-founder and former chief executive, Adam Neumann, the company piled billions of dollars into an erratic expansion that included adding huge office spaces in the world’s most expensive cities, offering discounts to lure tenants and buying other businesses. WeWork, which leases office space from landlords, refurbishes it and rents it out to its customers, shelved plans for an initial public offering in late September after investors were put off by the company’s losses and had questions about its corporate governance.



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HP Rejects Xerox Takeover Bid

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HP said on Sunday that it had turned down a takeover offer from Xerox, rejecting a deal that would have brought together two once-formidable printing companies that have faced business difficulties as demand for printed documents and ink has waned.

The cash-and-stock offer from Xerox “significantly undervalues HP and is not in the best interests of HP shareholders,” company officials wrote in a letter to John Visentin, Xerox’s chief executive.

The letter to Xerox called the proposal “highly conditional and uncertain” and expressed qualms about “the potential impact of outsized debt levels on the combined company’s stock.” It also raised concerns about a recent stark decline in Xerox’s revenue.

But the letter left open the possibility of a merger under different terms. “We recognize the potential benefits of consolidation,” it said, “and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox.”

A Xerox spokeswoman did not respond to a request for comment.

In its proposal, submitted on Nov. 5, Xerox put the total value of a possible transaction at $33.5 billion, or $22 a share — $17 in cash and 0.137 Xerox shares for each HP share. Xerox said a merger would save $2 billion in costs within two years.

HP and Xerox have cut costs significantly in recent months as they have struggled to navigate the accelerating erosion of the traditional printing business.

Over the years, HP has aimed to sell printers at no profit or a loss, while making its profit on selling a steady stream of replacement cartridges, called aftermarket supplies.

But a number of forces are undermining that model: the popularity of smartphones and tablet computers that allow electronic documents to be easily transported; the rise of sharing services that people use to distribute documents in the cloud; and a growing awareness of the environmental effects of profligate printing.

At the same time, companies that collect, clean and rebuild printer cartridges have made steady inroads. And the rise in recent years of Chinese cartridge-clone makers in particular has hurt the sales and profits of both HP and Xerox.



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SEMINAR ON CHINA UAE ECONOMIC AND TRADE COOPERATION

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On the 30th of October the UAE was organizing a seminar on CHINA and UAE Economic and trade cooperation, Held at the Hyatt Regency Dubai.

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