Avenues of response are important if the Internal Revenue Service (IRS) suggests you have a payroll tax issue.
Along with the Tax Division of the Department of Justice (DOJ), and the Offices of U.S. Attorneys, the IRS places a high priority on pursuit of employment taxes. According to the DOJ, employment taxes make up approximately 70 percent of revenue collected by the IRS. Unpaid employment taxes represent a sizeable amount of the U.S. Tax Gap.
While business operators, owners, or managers may consider the money collected from their workers as theirs until it is not—taxes withheld from the paycheck of an employee belong to the government. Robust pursuit of those taxes is a priority of the IRS. If you are in arrears on your payroll taxes, it is not unreasonable to expect that you will one day receive a letter from the IRS inquiring about the deficit.
Investigation into employment tax disputes can occur on the federal or state level. If the IRS inquires about your payroll tax calculations or the whereabouts of your payments, your initial response can set the tone for the potential civil or criminal tax investigation that may be ahead.
Whenever you hear from the IRS, your first action should be to contact a tax attorney with significant, successful experience working with the IRS. Perhaps there were accidental miscalculations of your payroll deductions—or you may be skimming the wage withdrawals owed by your company. Regardless of the backstory, when you have the attention of the IRS, guidance is needed from counsel who can help you navigate the road ahead.
Tips to consider if you are facing allegations of a tax crime include:
- Mistakes were made: An important component of a criminal tax charge is the willful and knowing conduct of the defendant. You may have underpaid taxes, withheld inappropriate amounts, or other error. Perhaps the individual responsible for withholding payroll taxes did not fully understand the process of pay over. A mistake does not constitute criminal conduct—but it will not excuse amounts owed plus fines.
- Avoiding taxes is not illegal: There are a number of perfectly legal means to avoid—not evade—payment of employment taxes. For payroll, there could be a worker classification dispute, or your employment tax collection and submission to the IRS could be completely outsourced. By working carefully through your process and calculations, you may be able to show there was no intent to evade your responsibility, due to honest mistake or possibly no mistake at all.
- Reliance on bad advice: It is important to deter the notion that you willfully provided false information to the IRS. If you engaged and relied on an accountant or other professional to manage your payroll, you may have unknowingly provided inaccurate information—or mistakenly interpreted the information you were given.
The aim of your response to the IRS is to halt, defer, or mitigate a potential criminal tax investigation. If approached by the IRS—speak with a trusted criminal tax defense attorney.
Skilled legal guidance on tax controversy or IRS criminal tax investigation
With offices in Cleveland and Chicago, the tax lawyers at Robert J. Fedor, Esq., LLC help you answer questions about your business tax return, or concerns you might have about foreign bank accounts or compliance. When you need experienced tax advice, call 800-579-0997 or contact us.