Tax fraud around employment taxes is easy to do, but the consequences are not easy to take when the Internal Revenue Service (IRS) gets involved.
We discuss employment tax disputes with some frequency. Our legal team works routinely with business owners and others dealing with payroll tax issues. We provide strategic representation to clients responding to their first IRS audit and those facing allegations of tax crime.
Employers are required to collect and pay over payroll taxes to the IRS. There are a number of recognized schemes by which business owners and managers evade payment of payroll obligations. Doing so can temporarily boost a bottom line, nudge a company out of the red ink, or fund a European vacay. If the scammer does not know when to quit, or is just tripped up along the way, an IRS criminal tax investigation may be initiated when the numbers do not add up.
What exactly does “getting caught” translate to for a business owner and their business?
An important point to remember about failure to pay over employment taxes is the fact that it is personal. The individual or parties responsible for collecting and paying the taxes can be swiftly held personally accountable.
If you are the person with the responsibility to withhold payroll taxes, you will know that collected monies are held in trust until the sum is paid over to the government. If that money is intentionally diverted away from the IRS, to pay business or personal expenses, the IRS can pursue you (and your personal assets) for the amount of the unpaid taxes. The same thing goes if you delegate your responsibility to another to collect and pay over the taxes. If the taxes are not paid, you are on the line for the money not paid, along with the employee who failed to pay them over.
When the diversion of employment taxes becomes known, the IRS can assess a trust fund recovery penalty (TFRP). The penalty is based on the amount of the unpaid trust fund balance. Depending on the length of the tax fraud that led to the IRS investigation, the penalty can potentially bankrupt a business and lead to criminal charges.
As employment taxes belong to the government, failing to pay them over, or failing to pay the TFRP can lead to charges of tax crime. Willful failure to pay over federal taxes is a felony with a price tag of $10,000 in fines, five years in prison—and the balance due on the TFRP.
Payroll taxes are tempting and easily filched. If you are aware of gaps in your employment tax payments, seek advice from a tax attorney experienced with criminal tax defense. If you are considering borrowing some of those payroll taxes—just for just a little while—remember you may end up paying for that private loan for years to come.
Contact our tax group when you get a letter from the IRS
The tax lawyers at Robert J. Fedor, Esq., LLC represent business and individual clients responding to tax controversy, offshore tax allegations, or employment tax disputes. When experienced tax advice is needed locally or internationally, call 800-579-0997 or contact us for a free consultation.