Payroll tax crimes are common and usually avoidable. The plight of one business owner highlights the federal obligation to pay over employment taxes to the Internal Revenue Service (IRS).
Business owners in the U.S. are required to collect and pay employment taxes to the IRS. It is a fact of business life. There are several types of taxes for which wages are withheld. These taxes include:
- Federal income
- Social Security
- Medicare
- Unemployment
Employees depend upon employers to withhold and pay these taxes on their behalf to ensure their right to participate in federal programs like unemployment and Social Security. Federal taxes are also critical for good governance. While employment tax disputes may arise over amounts owing, it is fundamentally clear that paying over payroll taxes is the responsibility of every business owner or their designee.
There are a couple of different types of payroll tax fraud. An owner may falsify documents to under-report full-time employees. Employees may be paid in cash under the table. Workers could be classified as contractors who are performing the work of employed staff. Business owners could also collect withholding taxes from employees but fail to pay the money over to the IRS. For one Michigan business owner, this type of tax fraud recently led to a prison sentence of a year and a day.
Yigal Ziv owned and operated a software development company in Walled Lake, Michigan. Mr. Ziv himself collected and paid over employment taxes owed to the IRS—at least until 2014. Between 2014 and 2018, Mr. Ziv collected employment taxes of approximately $691,000—but kept the withheld wages for his personal use. At the same time, he failed to file employment tax returns. As many do, Mr. Ziv used the money to pay personal bills and for luxury purchases. He also made mortgage payments and lease payments on a luxury vehicle.
In a twist, Mr. Ziv became aware of an ongoing IRS criminal tax investigation into his practices in May 2018. In response, he failed to file employment tax returns from the fourth quarter of 2019 to the fourth quarter of 2020 or pay over another $199,000 in withheld taxes.
Mr. Ziv pled guilty and was sentenced in March of 2023. He will also pay a fine of $5,000 and restitution of $897,271.
Business owners are responsible for employment tax returns and paying over-associated taxes, even if they designate the duty to an accountant. In this matter, Mr. Ziv has no one to blame but himself and will spend a year in prison as a result.
Speak with experienced tax attorneys in Cleveland and Chicago about questions you have regarding IRS criminal investigations or tax litigation
The legal group at Robert J. Fedor, Esq., LLC provides strategic solutions to complicated tax problems for businesses and individual clients around the world. When you need focused compliance advice, are considering bankruptcy relief, or if you receive correspondence from the IRS—contact us or call 800-579-0997.
