Employment tax fraud was a poor prescription for a Virginia business owner.
Virginia resident, Jerry Harper, Jr., is a pharmacist who owns five pharmacies in the Western District of Virginia. By combining accounting practices for his five pharmacies, Mr. Harper maintained control of the business dealings of all his pharmacies. Properly withholding his employment taxes was, unfortunately, a pill too hard for him to swallow.
Employment tax disputes occur when the Internal Revenue Service (IRS) questions whether an individual or entity has properly accounted for its employees and paid over employment taxes owed to the government. Some different types of payroll tax issues include:
- Paying employees in cash or “under the table”
- Leasing employees without creating an appropriate paper trail to account for payroll and workers comp payments
- Filing fraudulent tax returns that do not account for payroll taxes
- Failure to file and pay over employment taxes
Employers are responsible for collecting and paying taxes to the federal government from the wages paid to their employees. Those taxes included unemployment, Medicare, federal income withholding, and social security taxes. These taxes fund the respective programs for which they are collected. Failure to pay over taxes that have been collected is a common reason for tax litigation.
Between 2000 and 2014, Mr. Harper collected but did not pay over taxes on behalf of his employees. Rather than pay the withholding taxes, Mr. Harper used the money for his personal use. In a 15-year period, Mr. Harper filed to pay employment taxes only once. Instead, he used the money for expenses including:
- Approximately $1 million was wired to a personal bank account controlled by Mr. Harper
- Investments of approximately $500,000 were made in stock market and other investments
- More than $100,000 was used to pay for the pharmacy school tuition of his son
- Harper purchased automobiles, sports equipment, and real estate in North Carolina and Virginia
Funneling employment taxes to personal bank accounts is common. While some business owners are pressed toward tax fraud because their company is in the red, others are simply tempted by the ease by which payroll taxes can be illegally deferred.
Although he initially pleaded not guilty, Mr. Harper changed his plea to guilty and was sentenced to 41 months in federal prison, with a fine of $25,000, along with restitution of $5,059, 555.
If you become aware of a problem with employment taxes in your company, work through the issue with an experienced tax attorney to find the best possible option for the circumstances of your case—before special agents become involved.
Contact an experienced tax attorney for strategic representation on issues of employment tax fraud
If you are involved in an employment tax issue, or are notified of an IRS criminal investigation, reach out to Robert J. Fedor, Esq., LLC for a confidential consultation. With offices in Chicago, Illinois, and Cleveland, Ohio we deliver skilled legal representation to resolve tax controversies. Contact us or call 800.579.0997 today.