Payroll tax evasion refers to the deliberate act of withholding payroll taxes, such as income, Social Security, and Medicare taxes, from employees' wages but failing to remit these funds to the appropriate government agencies, typically the Internal Revenue Service (IRS). This illegal practice can lead to serious legal consequences for employers, including fines, penalties, and potential imprisonment, as well as financial hardships for employees who may miss out on their entitled benefits.
Florida resident John M. Williams, 63, pleaded guilty to failing to remit payroll taxes withheld from employees' earnings while overseeing First Coast Exteriors, Inc. This resulted in unpaid payroll taxes totaling around $306,500 and an additional debt of $128,943 for unremitted Social Security and Medicare taxes. Williams is now facing expensive fines, a prison sentence, and severe reputational harm for his actions.
If you need help with a tax-related legal problem, connect with our experienced Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by dialing (800) 681-1295.
In September of 2023, the U.S. Department of Justice disclosed that John M. Williams, a 63-year-old resident of St. Augustine, FL, entered a guilty plea for his failure to properly handle and remit income taxes, Medicare taxes, and payroll taxes that were withheld from his employees' earnings. This misconduct could potentially result in a maximum prison sentence of five years, although a sentencing date has yet to be determined.
Williams' involvement in this case originates from his assumption of ownership and managerial responsibilities at First Coast Exteriors, Inc. in 2012. This company specialized in stucco application and home construction. As a corporate officer with substantial financial authority, Williams was tasked with collecting payroll taxes from his employees' taxable wages. He was also responsible for accurately reporting and transmitting these payroll taxes to the IRS on a quarterly basis.
An audit of the Form W-2s submitted for First Coast Exteriors employees during the period from the first quarter of 2013 to the fourth quarter of 2018 uncovered that the company did withhold payroll taxes from its employees' salaries. However, IRS records indicate that Williams did not report these withholdings on the Form 941 quarterly tax returns or remit the corresponding funds to the IRS as required.
Williams' failure to fulfill these obligations between 2013 and 2018 resulted in an outstanding sum of approximately $306,500 in unpaid payroll taxes. Furthermore, he neglected to forward the employer's portion of Social Security and Medicare taxes to the IRS, leading to an additional debt of $128,943 during the same timeframe.
Notably, First Coast Exteriors was not the only company under Williams' management with payroll tax payment issues. Records indicate that he also operated another business called W.W. Contractors, Inc. since 1995. Over 13 financial quarters from 2009 to 2012, W.W. Contractors filed quarterly Form 941 returns but failed to make complete or timely payments for the payroll taxes owed to the IRS.
Brian Payne, the special agent in charge of the IRS Tampa Field Office, expressed concern over these cases. He emphasized the importance of business owners understanding that tax evasion would be thoroughly investigated to ensure accountability for unethical actions. In this particular instance, Williams not only cheated the federal tax system but also deprived his hardworking employees of their rightful employment benefits.
The IRS is committed to aggressively persecuting perpetrators of tax evasion. If you are concerned that you may be in trouble with the IRS, then our Dual-Licensed Tax Lawyers & CPAs will review the specific circumstances of your case and explain the appropriate next steps. Further, we will handle all communications with the government while working to protect your rights and interests.
Payroll tax evasion can come in multiple different forms. For instance, the following are all examples of common payroll tax evasion schemes:
In the ghost employee scheme, an employer creates fictitious employees on the company's payroll who do not actually work for the organization. The employer then withholds payroll taxes from these non-existent employees' salaries and diverts the funds for personal use. This scheme can be difficult to detect because the fake employees are typically associated with fabricated identities and bank accounts. It results in both unpaid taxes and fraudulent claims for tax refunds or credits, ultimately defrauding the government.
Some employers attempt to evade payroll taxes by wrongly classifying employees as independent contractors. Independent contractors are responsible for paying their own income taxes, Social Security, and Medicare taxes, unlike employees whose employers typically withhold and remit these taxes. By misclassifying employees in this way, employers avoid their tax obligations and shift the responsibility to the workers. This practice is illegal and can lead to severe penalties if discovered during an audit or investigation.
Another common payroll tax evasion scheme involves underreporting the salaries of employees. Employers may pay their workers more than what is documented on official payroll records, with the intention of reducing the amount of payroll taxes owed. This scheme deceives tax authorities and results in both unpaid payroll taxes and inaccurate financial reporting. It can lead to substantial fines and penalties when detected.
In some cases, employers pay employees "off-the-books" in cash or through unrecorded transactions to avoid payroll tax obligations. These under-the-table payments are not reported to tax authorities, allowing employers to evade both income and payroll taxes. This practice is illegal and deprives employees of their rightful benefits, such as Social Security and Medicare contributions, and can lead to serious legal consequences for employers.
A pyramiding scheme occurs when an employer continuously withholds payroll taxes from employees' wages but does not remit these funds to the IRS or other tax authorities. Instead, the employer uses the withheld funds to cover operating expenses or other debts. Over time, the tax debt accumulates, and the employer repeats the process, creating a pyramid of unpaid payroll taxes. As evidenced by the previously mentioned case of John M. Williams, this scheme can result in substantial tax liabilities and penalties.
Seek help from our Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295.