We have previously written about the need for small businesses and large corporations alike to properly handle their payroll tax and other trust fund tax obligations. Maintaining compliance with these tax obligations is particularly important due to the harsh consequences that company principles and the party responsible for handling the payroll obligations can face. And yet, when a business runs into financial issues or an industry downturn it seems that far too many companies attempt to address this issue through payroll or employment tax evasion.
Engaging in conduct of this type is never a good idea or a viable short- or long-term strategy for a company. In light of comments made by Acting Assistant Attorney General Caroline Ciraolo regarding this type of fraud being an enforcement priority, businesses considering engaging in such behavior should think again. Furthermore companies already engaging in such behavior should contact an experienced and strategic tax attorney immediately.
Trust fund taxes include a number of tax responsibilities employers and others are charged with collecting on the government’s behalf. In fact the reason why they are called trust fund taxes is because the tax proceeds actually belong to the government. The employer is merely holding the funds in trust for the government until it comes time to turn those funds over in satisfaction of the company’s tax obligation.
In remarks presented at the American Law Institute’s Continuing Legal Education conference, Acting Assistant Attorney General Caroline Ciraolo stated that the DOJ had had recently updated the section of its Criminal Tax Manual pertaining to trust fund tax fraud under 26 U.S.C. § 7202. She also stated that the U.S. government does not want “honest employers looking down the street . . . and asking [themselves], why am I complying?” Thus, enforcement and investigation of this tax obligation has become a priority not only for the Department of Justice, but also for a number of other government agencies. She remarked that enforcement of payroll tax issues was being coordinated with IRS Criminal Investigations. Furthermore, while this did not come up during the discussion, the department of Labor has also recently indicated its willingness to delve into this area with its announcement that worker classification issues is a major enforcement focus. With no less than three government agencies watching employment tax issues closely, anything less than full compliance regarding a business payroll tax obligation is foolhardy and subjecting the business and all responsible parties to foreseeable, unnecessary risk.
Under 26 U.S.C § 7202, a taxpayer who fails to “collect, account for, and pay over any tax imposed by [Title 26]” can face serious penalties. Under § 7202 an individual can be fined up to $250,000 while corporations can face fines of up to $500,000. Furthermore, upon conviction the individual can also be ordered to serve up to five years in federal prison. In her remarks Ms. Ciraolo emphasized that the DOJ is seeking criminal penalties of this type against taxpayers. She provided the example of Maria Townsend who was a former president of a contracting company. Ms. Townsend was sentenced to a 40 month federal prison term following her criminal payroll tax conviction.
However, more commonly taxpayers with payroll tax issues will find themselves facing civil penalties. While civil penalties for payroll tax fraud or evasion will not include a prison sentence, it does include potentially devastating financial consequences. The parties that are accountable for the failure to satisfy the payroll tax obligation can be held personally liable for the company’s unpaid and outstanding tax obligation. The imposition of such a tax liability can be financially devastating.
If you believe that your company may have run afoul of payroll tax obligations, the time to address these concerns is now. If you have already been contacted by the IRS regarding problems with your payroll tax obligation, you need a dedicated and experienced lawyer who will fight for you. The tax professionals of the Tax Law Offices of David W. Klasing are experienced in handling an array of tax issues including employment tax problems. To schedule a reduced-rate initial consultation call 800-681-1295 or contact us online today.