A New Jersey man pleaded guilty in U.S. District Court for failure to turn over payroll taxes. Yet another business owner faces prison time for willfully failing to pay over payroll taxes, a common but tempting tax crime.
Tyrone Pitts of Lawnside, New Jersey, owned and operated Arline Electrical Construction Services (AECS). The responsibility for collecting wage withholding, filing required returns, and paying over payroll taxes generally falls on the business and those responsible for its tax obligations. Even if the company contracts with a third-party service provider, delegating these duties does not necessarily eliminate the responsibility of the business or its responsible individuals.
In this instance, Pitts ran an apparently profitable business. That said, according to the information filed against him, Pitts failed to file the Employer's Quarterly Federal Tax Returns (Form 941) for 15 of the 16 quarters from 2020 to 2023. In addition to failing to file the returns, he did not pay the Internal Revenue Service (IRS) payroll taxes for all 16 quarters. In all, Pitts failed to pay $810,403 in payroll taxes.
The IRS press release reports that Mr. Pitts admitted to not paying over the money and pleaded guilty. The maximum penalty is five years in prison and potential fines. Sentencing for Pitts is set for January 2027.
Understanding the Consequences of Unpaid Payroll Taxes
As criminal tax attorneys, we work with individuals and companies who are facing allegations involving payroll taxes, tax crime, and other compliance issues.
While business owners are aware of their responsibility to pay over taxes, they oftentimes are not aware of the liability of failing to report or pay wage withholding correctly and on time. If you are looking for a refresher on your responsibilities and what you need to understand about employment tax fraud, take a look at our guide, Employment Tax Fraud: What Every Business Owner Needs to Know.
While the actions taken by business owners to evade paying over employee withholding are similar, the motivations vary. A business owner may be trying to bolster a sagging bottom line, or simply pad their pockets. Here are some important points to remember about payroll tax fraud:
- Federal income taxes and the employee portion of Social Security and Medicare taxes withheld from wages are considered trust fund taxes. If the funds are not paid over, responsible individuals who willfully fail to collect, account for, or pay over these taxes may be assessed a Trust Fund Recovery Penalty (TFRP), generally equal to the unpaid trust fund taxes. Interest may also accrue.
- When withheld payroll taxes are not deposited as required, the IRS may assess a failure-to-deposit penalty, plus interest on that penalty.
- A criminal tax investigation may be initiated if it appears a business owner is willfully diverting payroll tax withholding instead of paying it over to the IRS.
Payroll tax compliance issues can result in significant civil penalties and, in some cases, criminal prosecution.
When Should You Contact a Criminal Tax Attorney?
If you are under investigation for payroll tax issues or in arrears to the IRS, contact our legal group at 440-250-9709 or schedule a consultation. Robert J. Fedor, Esq., L.L.C. serves clients throughout the U.S. and abroad from offices in Cleveland, New York, and Chicago.
