The temptation is too great—a business owner siphons employment taxes to fund the business or his lifestyle. You may be falling behind on paying over withholding taxes right now, but are convinced no one will notice. But what if the IRS already knows?
Enforcement around employment taxes is a priority for the Internal Revenue Service. Employment taxes fund the government that keeps the country moving. FICA taxes withheld from employee paychecks help support important programs like Medicare and Social Security. Workers who do not contribute sufficiently to these social programs may find their access to needed government assistance cut off when needed. Business owners or operators who pilfer FICA paycheck proceeds rarely take these downstream consequences seriously.
According to IRS data, employment taxes represent approximately 70 percent of all revenue collected by the agency. Theft of employment taxes also represents a significant part of the U.S. Tax Gap, which is the difference between taxes actually paid and owed in the U.S.
Another aspect of employment tax fraud occurs when an owner assigns the responsibility to collect and turn over payroll taxes to a staff member. When the malfeasance is discovered, the employee will be fired and possibly criminally prosecuted. What most business owners fail to factor in, when they embezzle payroll taxes or have an employee who does, is that they will be responsible for a Trust Fund Recovery Penalty (TFRP). The penalty is assessed against the party responsible for paying over employment taxes. If an employee steals withheld taxes instead of paying them over—the employer will pay.
As a result, the IRS often pursues criminal tax investigations of operators at the center of an employment tax dispute. The IRS has a healthy conviction rate for the cases it takes to trial for employment tax violations—for example, California business owner, Larry Kudsk.
Mr. Kudsk owns two construction companies that provide general contracting and subcontracting services. For both companies, Mr. Kudsk was responsible for withholding and paying employment taxes over to the IRS. For approximately two years, Mr. Kudsk failed to turn over withholding to the IRS. Following an IRS criminal tax investigation, and together with the U.S. Attorney, and the Department of Justice, Mr. Kudsk was arrested and will serve one year in prison, followed by three years of supervised release. For his trouble, Mr. Kudsk owes the government $244,973.00.
There is nothing exceptional about the crimes of Mr. Kudsk or about employment tax crime itself. The IRS takes a hard line against those who pocket money they should be paying over and work hard to prosecute business owners who do. If this is you—speak with an experienced criminal tax attorney today.
Trusted criminal tax defense and representation on tax litigation and tax controversies
The tax attorneys at Robert J. Fedor, Esq., LLC help individuals and entities respond quickly and strategically to potential tax prosecution. When you need trusted tax advice locally or abroad, contact us or call 800-579-0997. We have offices in Cleveland and Chicago.'