A recent case from the Department of Justice (DOJ) offers an opportunity to revisit the importance of paying over employment taxes to the IRS—and the consequences if you don’t.
According to the Internal Revenue Service (IRS), collection and payment of employment taxes by business owners and operators is voluntary. It is voluntary right up to the point where you do not pay them and a letter notifying you of an IRS audit arrives in your mailbox.
Employment taxes paid over to the IRS support the government and provide important future benefits for individual employees. These taxes include Medicare, unemployment, social security, and federal income taxes. Employers can collect and pay over the taxes and file required reports, or they can outsource the work to a third-party provider. Either way, the taxes have to be paid to avoid the attention and disruption of an IRS criminal investigation.
Recently, the DOJ reported on several cases where owners or third-party providers collected and skimmed their employment taxes. The decision to dip into payroll taxes is fateful. For some owners, the step toward tax fraud is brought about by business or personal stress. For others, the decision is fueled simply by a pile of money available for pilfering with a few clicks into a software program. For anyone, the short-term gain will lead to long-term loss.
A recent example includes Brooklyn business owner Zhi Hui Zheng, who operated two businesses, Good Time Sewing and Perfect Made Apparel. Setting off an employment tax dispute with the IRS between 2012 and 2016, Mr. Zheng did not collect payroll taxes. In addition, he was accused by the agency of failure to file necessary reports along with the taxes. All together, he created a tax liability for himself of $688,234.
Pleading guilty in September, he will be sentenced in January 2020, and faces five years in prison. While he will likely serve less than that, he will be on probation and pay hefty restitution. In this case, Mr. Zheng was not unduly enriched on the face of the case—he simply did not collect and submit the money along with the reporting forms.
Unlike Mr. Zheng, many other business owners collect the money and either totally or partially take some of the largess for their personal use. These defendants are usually also charged with filing fraudulent tax returns when they fail to report the money they siphoned from their payroll taxes.
If you are aware of something awry in your business process of collecting or paying over your employment taxes, talk to an experienced tax attorney now. Steps can be taken to mitigate the damage to your business—and your liberty—if a criminal tax charge can be avoided.
Seek experienced tax guidance for defense on issues of tax fraud
If you are involved in an offshore tax, employment tax issue, or criminal tax fraud issue, contact us at Robert J. Fedor, Esq., LLC for a confidential consultation. With offices in Chicago, Illinois, and Cleveland, Ohio we provide strategic individual and corporate representation with tax troubles. Contact us or call 800.579.0997 today.