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According to a Department of Justice press release, Gail Cooper, 64, from Greenville, Ohio, will serve over a year in federal prison for failing to comply with employment tax obligations. This story evidences the seriousness surrounding employment tax compliance and the potentially life-altering consequences facing those responsible. Those who are responsible for the payroll tax function within a business who believe that they may not be in complete compliance should contact a tax defense attorney as soon as possible to assess potential criminal and civil exposure.
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Court documents reveal that Cooper was the owner and operator of Greenville Architectural Glass, a company focused primarily on the installation of glass in residential and commercial buildings for customers throughout Ohio. Between 2013 and 2015, the company paid its employees and withheld the appropriate amount of federal income tax, Social Security, and Medicare taxes from their checks. But according to prosecutors, Cooper failed to account for the amounts that she withheld, and failed to pay over the withheld amounts to the IRS. The government estimated that Cooper caused the company to withhold but not pay over more than $280,000 in payroll taxes.
During the course of the investigation, federal agents discovered that Cooper filed false individual federal income tax returns for tax years 2008 through 2010. During such periods, Cooper intentionally understated the income of the business, resulted in an understatement of net income. To achieve this, federal prosecutors alleged that Cooper directed the bookkeeper to delete certain invoices from the company’s software after payment had been received from the client. This resulted in the software indicating that the client had not paid.
Note: Unreported income is easily identified by reconciling the deposits to the company’s bank account against the revenue reported on the income tax returns which is a standard auditing procedure. All it takes is $10,000 of unreported income for the IRS to associate in a technical fraud advisor’s whose sole job it is to work up the audit for possible hand off to the criminal investigation division of the IRS which routinely achieves a 90% conviction rate.
Like many business owners that we feature on our blog, Cooper also paid many of her own personal expenses with business funds, resulting in improper tax deductions for the business. The government estimated that Cooper’s illegal activities caused a tax loss of nearly $588,000. (Note: all it takes is $30,000 of tax loss to result in a sentence of a year in jail under the Federal sentencing guidelines).
In addition to being sentenced to serve 14 months in a federal prison, Cooper was also ordered to serve two years of supervised release upon the completion of her physical incarceration. Finally, Cooper was ordered to pay over $659,262 in restitution to the IRS.
Business owners and those who are responsible for the payroll function within a business have a legal obligation to collect payroll taxes through withholding. After those amounts are withheld, they must be properly accounted for through quarterly filings, and finally, the amounts must be remitted to the federal government. As this process is the source of most of the tax dollars collected by the IRS, it is easy to understand why noncompliance is strictly not tolerated.
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The tax and accounting professionals at the Tax Law Offices of David W. Klasing have worked with business owners of companies ranging in size from mom and pop to middle market. If you have received notice from the IRS or state taxing authorities that your payroll tax withholding, accounting, and remittance procedures are being scrutinized, our team of zealous advocates will help you develop a legal strategy aimed at preserving the integrity of you and your business and especially your liberty. Do not let the threat of a criminal tax investigation or prosecution keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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