According to a press release by the Department of Justice, John Herzer, pleaded guilty to willfully failing to pay over employment taxes to the Internal Revenue Service. Herzer, who was the Chief Financial Officer at AXO Staff Leasing, handled all of the company’s financial affairs and had final authority to pay creditors and other obligations. Between 2010 and 2016, prosecutors allege that Herzer did not pay over payroll taxes to the IRS. Although AXO withheld federal taxes from the paychecks of its employees, the money never made it into the hands of the IRS. Instead, the money seemed to find a way into the hands of Herzer.
According to court documents, prosecutors alleged that Herzer used over $4.9 million of the money that should have been transferred to the IRS for his own personal expenses. Prosecutors accused Herzer of transferring millions of dollars into his own personal bank accounts. In total, the government estimates that Herzer’s criminal activity cost the IRS more than $13 million. If convicted, Herzer faces five years in a federal prison. Additionally, he will likely be sentenced to serve a term of supervised release and be required to pay restitution to the IRS.
In cases where an officer or employee of a company takes illegal actions that cause the business to fall out of tax compliance, the IRS and/or state tax agencies can (and often do) go after the individual officer or employee, as they did with Mr. Herzer in the story above.
Payroll and Trust Fund Taxes
As you can see from the story above, the government is extremely aggressive when it comes to employment and payroll taxes. Payroll tax crimes are one of the most aggressive areas that the IRS and state taxing authorities will pursue. Payroll taxes, specifically “trust fund taxes”, are the amount of tax that is withheld from an employee’s paycheck to go toward their yearly tax liability. That money is being held in trust for the government until it is remitted. Employers that willfully misappropriate payroll taxes face not only stiff monetary penalties but could easily find themselves prosecuted and sentenced to serve time in federal prison. If there is one thing that the IRS and Department of Justice drop the hammer on, it’s misappropriating other taxpayers’ withholdings. If you are under examination for payroll tax-related issues or feel like an audit would uncover noncompliance, working with an experienced tax attorney can help ensure that you get back on the right track while minimizing the potentially devastating consequences of being out of compliance.
Worker Classification
Another one of the hottest topics among the IRS and state taxing authorities is the classification of labor for tax purposes. Many business owners mistakenly believe that they can simply choose whether their labor are employees or independent contractors through the issuance of either a W-2 (for employees) or a 1099 (for independent contractors). That is simply not the case. Federal and state tax law lays out various factors that are used to determine whether an individual is an employee or an independent contractor.
Business owners that are targeted for an audit that have worker classification issues are often in for a rude-awakening. Employers that incorrectly classified workers as independent contractors instead of employees are typically required to pay back taxes, interest, and penalties associated with the misclassification, which can add up very quickly. If you are involved in a worker classification audit or think you may be out-of-compliance with regard to your workforce’s tax classification, it is in your best interest to consult with an experienced employment tax attorney as soon as possible.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience assisting businesses and their owners in a wide-range of tax and business law-related matters. Whether you are facing an audit or investigation with regard to income, employment, or sales tax, or are in need of individual or business tax planning assistance, our zealous advocates are standing by to assist. Don’t let the threat of an IRS or state tax audit keep you awake at night. Contact the Tax Law Offices of David W. Klasing today online or at 800-681-1295 for a reduced-rate consultation.
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