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The owners of a Pennsylvania flower business found themselves on the wrong end of a jury trial in federal court last week. According to a Department of Justice press release, Andrew Bassaner, 45, and his wife, Vicki Bunchuk, 44, were the owners of Florist Concierge Inc. Between tax years 2010 and 2012, the couple was accused of having filed fraudulent corporate and personal income tax returns with the IRS. During that time, prosecutors alleged that they used business funds to pay for lavish personal expenses, which they subsequently wrote off on their business tax returns as legitimate business-related expenses.
Between the years 2011 and 2014, Bassaner and Bunchuk were found to have filed fraudulent employment tax returns for FCI. The employment tax returns illegally classified its employees as independent contractors in an attempt to avoid employment taxes based on the wages of those they employed.
The couple is scheduled to be sentenced on June 27th and face a statutory maximum sentence of five years in prison for the counts related to employment tax charges and up to three years in prison for the counts relating to their filing of a fraudulent return. The pair will likely be sentenced to an additional term of supervised release and financial penalties such as restitution.
Employment taxes can sometimes be a trap for the unwary. Between employment taxes and the withholding of income tax from employees’ paychecks, it is not uncommon for employers to come out of compliance with the law. Struggling businesses may also fall into the trap of “borrowing” from the withheld income taxes from their employees. Dangerous business tax practices like dipping into funds meant to be held in trust can land employers and their owners and officers in extremely hot water (or even worse, in prison).
Employers are required to withhold income taxes from their employees’ paychecks. Such withheld taxes are supposed to be held in trust for the IRS and the State. If an employer does not turn over the withheld money to the IRS or the State, as is required by law, the IRS or the State may assess the trust fund recovery penalty. The trust fund recovery penalty is equal to 100% of the required withholdings.
The trust fund recovery penalty is not only assessed against the employer, but also against any individual that the government determines is a “responsible person” with regard to the collection and remittance of withheld income/employment taxes thus the IRS and State can be legally charging interest on the same underlying debt multiple times. Sharing the burden of the trust fund recovery penalty with responsible parties allows the government to go after “deep pockets” of owners or high-ranking employees that have incorporated their business to shield themselves from personal liability. For more information about who is a responsible party for employment tax purposes, visit our practice page on employment taxes here.
Employers and other responsible parties who find themselves in trouble for withholding and remittance non-compliance are typically discovered in one of two ways. First, businesses that file a tax return indicating the amount of employment tax/withholding remittance due but do not make payment can raise a red flag. Alternatively, a red flag is triggered when employees indicate that they have had income tax withheld but no withholdings were received by the IRS from the employer. In either case, the employer is likely to receive a notice of nonpayment of employment taxes.
If you are a business owner and have questions about your current procedures with regard to employment tax withholding or have received a notice of nonpayment of employment taxes, it is in your best interest to consult with an experienced employment tax attorney. Unlike other tax professionals, a tax attorney has extensive training on critical subject matters such as criminal tax defense, criminal procedure, evidence, and constitutional law.
The Employment and Collection Tax Lawyers and Accounting & Tax Professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers from all backgrounds in a myriad of tax situations. Whether you are a business owner attempting to navigate the oftentimes-confusing process of tax compliance or have a foreign bank account that hasn’t yet been disclosed to the federal government, our team of zealous tax advocates are standing by to fight for your best interests. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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Case law examples of trust fund recovery penalty determinations:
Criminal Exposure for failing to pay over back payroll taxes after notice has been given:
Employee vs Independent Contractor
Employment Tax Representation Overview
Failing to pay over back payroll taxes after notice has been given
Here is a link to our practice overview video on warning signs than an audit has gone criminal.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.