Two years ago, Sacramento County owed the federal government $18 million in back taxes money that New Jersey payroll processor Ingentra stole rather than paid on the county's behalf.
If forced to pay the bill, county officials said then, the county would have to lay off 2,300 employees, on top of the 3,300 employees who lost their jobs in recent years because of the recession.
The Internal Revenue Service was sympathetic, agreeing to a settlement late last year. The county will pay the IRS $500,000 and has already started making payments.
The county made what is called an "offer in compromise," an option the IRS offers to any taxpayer facing a financial hardship or other compelling reasons for not being able to pay back taxes.
The county's argument to the IRS: It was facing a financial hardship, as shown by years of budget cuts, and it had already sent payroll processor Ingentra the money that was supposed to go to the IRS, said Julie Valverde, the county's finance director.
"Any failure to accept the offer in compromise will adversely impact the provision of vital social services and cause irreparable harm to county residents who rely upon (the county) for such essential public services and public protection," the county wrote in its offer proposal.
The IRS was able to recover $3.3 million from Ingentra. That left the county on the hook for a little under $18 million.
Two executives at Ingentra, Albert Cipoletti and Kerry Seaman, have pleaded guilty to fraud charges in U.S. District Court in Sacramento. Cipoletti and Seaman admitted that they took payroll deductions from Sacramento County and some private companies and used the money for Ingentra expenses.
The county in 2004 outsourced payroll processing for dozens of special districts because officials thought they could save money by using a contractor. The county decided that Ingentra could provide the service at a lower cost than a competing bidder.
County officials learned about Ingentra's theft in 2010 when contacted by an IRS agent. Valverde said the county immediately turned to federal law enforcement officials to prosecute the matter.
"I was upset," Valverde said. "It was a very large embezzlement."
She credits Washington, D.C., tax attorney David Fuller with helping the county win a reasonable settlement. Before hiring Fuller, the county had two settlement offers rejected by the IRS, she said.
The county paid Fuller $230,000 for his services.
As a result of the fraud, the county has decided to have its own employees process payroll taxes for special districts, as it did before hiring Ingentra in 2004, Valverde said.
One still unsentenced
The IRS agreement would mark an end to this story except for one thing: Seaman has managed to put off her sentencing for more than two years. She pleaded guilty to one count of wire fraud in November 2010, and sentencing was set for the following February.
Since then, her attorney, Anthony Colleluori, has requested and received about 10 continuances. Among the reasons cited: another case requiring Seaman's testimony; scheduling conflicts with other cases; medical problems in his family; and a surgery for Seaman.
During that time, U.S. District Court Judge Garland Burrell Jr. has allowed Seaman to travel to Vermont and North Carolina for business and personal reasons, including a three-week family vacation.
Sentencing for Seaman is now scheduled for April 12.
Her attorney argues that Seaman should receive a sentence of probation, including a year of home detention. He said Seaman was set up to be the "fall guy" by Cipoletti.
The government disagrees, arguing that Cipoletti was sentenced to six and a half years in prison, and "Cipoletti and Seaman are on nearly equal footing with respect to culpability."
The government added in court records, "Seaman was the comptroller and, of significance, executed almost all of the fraud."
Call The Bee's Brad Branan, (916) 321-1065. Follow him on Twitter @bradb_at_sacbee.