According to a Department of Justice press release, a New Hampshire businessman was recently sentenced to serve 18 months in federal prison after aiding companies in their effort to evade employment taxes. This story should serve as a reminder to business owners, corporate officers, and those employees who are in roles responsible for payroll functions that the IRS and Department of Justice hold the administration of the payroll and employment-related tax regime among the highest priority items, as they relate to the overall collection of income taxes. If you have failed to properly withhold, account for, and pay over employment taxes for one or more quarters, it is in your best interest to contact an experienced tax defense attorney to formulate a strategy to come into compliance and reduce the odds or completely avoid criminal prosecution.
Defendant Worked to Frustrate Employment Tax Laws
This story is an update to a prior blog posting that we brought you in 2019. If you recall from that story, prosecutors alleged that between tax years 2011 and 2013, Walter Rodriguez was the owner and operator of Walter Rodriguez Drywall and Finish. The company serviced the Manchester, New Hampshire area and did work for construction companies in New York and Massachusetts. When Rodriguez’s company completed a job, the construction company that employed him would typically issue a Form 1099 and send a copy of such Form 1099 to the IRS, as required by law.
Rodriguez requested, and the construction companies agreed, to have checks written and Forms 1099 issued to fictitious business names. According to prosecutors, this was to conceal income. Rodriguez cashed the checks at local check-cashing businesses around New York and New Hampshire. When it came time for Rodriguez to file annual tax returns, he failed to accurately report the total gross receipts of his business. Rodriguez omitted the income that was from checks not written to his company’s correct name.
In addition to Rodriguez’ year and a half prison sentence, he was also ordered to serve one year of supervised release, commencing after his physical incarceration is complete. Lastly, Rodriguez was ordered to pay restitution of $416,163 to the IRS, representing the tax loss that he caused.
The Government’s Sensitivity Surrounding Employment-Related Taxes and How to Come into Compliance
Because of the importance of payroll and employment-related taxes, the tax laws surrounding the relationship between an employee, their employer, and the government differ from other areas of taxation. For instance, a corporate officer or other employee may be held responsible for the payroll tax noncompliance of their company. The trust fund recovery penalty associated with the failure to properly comply with U.S. employment taxes can be devastating to an individual, regardless of their role at the company. If the government can prove that the failure to properly withhold, account for, and pay over withheld employment taxes was willful, criminal action and a sentence to serve time in a federal prison may result.
If you have failed to comply with employment or payroll tax requirements, such as withholding funds from employee paychecks but not remitting them to the IRS, you should contact an experienced tax attorney to identify your potential exposures and develop a plan to come into compliance. Working alongside a seasoned tax lawyer will ensure that you are not only considering the proper tax implications of your actions but are employing an effective legal strategy that keeps your physical and financial freedom top of mind. Additionally, and perhaps one of the most valuable benefits is not having to go up against the IRS alone.
Questions about delinquent payroll taxes and trust fund recovery penalty
- What happens if an employer continues to incur new payroll tax liabilities?
- California Employment Taxes Basics
- How Does the IRS Develop an Employment Tax Fraud Case from the First Indication of Fraud to a Criminal Indictment?
- Can more than one person be considered responsible by IRS
- How unpaid employment tax payments are allocated
- When a corporate officer is considered a responsible party
- Examples of trust fund recovery penalty determinations
- Failing to pay employment taxes after notice is given
- How to determine responsible person for trust fund recovery
- Assessing trust fund recovery penalty and option to appeal
- What is the trust fund recovery penalty?
- What are the penalties for failure to pay employment taxes
- When am I considered liable for company’s employment taxes
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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