Owners of small and medium-sized businesses are typically chiefly concerned with focusing their time and energy on whatever it is that their business does. When employees are hired to assist in that endeavor, it is often difficult for employers to shift some of their focus to the responsibilities that come along with paying others for services. On the other hand, there are some business owners who fully understand the responsibilities and legal obligations of having employees, but simply choose to disregard them. Regardless of an employer’s mindset, failing to comply with employment tax obligations can lead to criminal sanctions, including lengthy prison sentences. Taxpayers who are at risk, or are currently being investigated for, violating employment tax laws should contact an experienced criminal tax defense attorney for guidance as soon as possible.
Larry Thornton, 67, of Germantown, Tennessee, was sentenced to spend a year in prison after a guilty plea on charges of failing to pay employment taxes and failing to file personal and corporate tax returns. According to a press release by the Department of Justice, Thornton was the President and CEO of Software Earnings, Inc. and First Touch Payment Solutions, LLC, both operating in Memphis, Tennessee. In his capacity as CEO, Thornton caused both of the companies to violate several employment tax laws. In addition to his federal prison sentence, Thornton must complete two years of supervised release and pay restitution of over $10,000,000 to the IRS.
According to court documents, Thornton began violating federal employment tax laws in 2007 when he failed to remit withheld taxes from Software Earnings, Inc. employee’s paychecks to the government. During that time, he also failed to file the quarterly tax return for that entity. In 2010, potentially believing that he could get away with the illegal activity, Thornton failed to remit First Touch employee’s income tax withholdings. He also stopped filing quarterly tax returns for First Touch. Furthermore, Thornton failed to pay FICA taxes for his employees. Investigators uncovered evidence that the money that should have been remitted to the federal government was being spent on lavish housing, automobile and yacht payments, and expensive vacations.
Federal law requires that employers collect and remit taxes on behalf of their employees. Furthermore, employers are required to pay their portion of an employee’s FICA payroll taxes. As Mr. Thornton is learning the hard way, the government takes the legal obligations of employers to remit and pay payroll taxes very seriously and those not in compliance could find themselves locked up and financially devastated.
Employers need not maliciously break employment tax laws to find themselves in hot water with the IRS or state taxing authorities. For instance, the misclassification of employees/independent contractors can cause a failure to comply with payroll tax obligations. An employer is not required to withhold and remit taxes on payroll for independent contracts as they are for employees, nor are they required to pay a portion of FICA payroll taxes for the independent contractor. An employer who believes that they are correctly classifying a taxpayer as an independent contractor when they are, in fact, an employee, may be in violation of federal and state tax law. Furthermore, some small employers pay their employees in cash or “under the table”. Such practices are illegal and taxing authorities are dropping the hammer on business who engage in them.
If you are a small or medium-sized business owner and find yourself operating outside of the law with regard to employment/payroll tax, or are being investigated for potentially doing so, it is in your best interest to contact an experienced criminal tax defense attorney as soon as possible. Unlike other tax professionals, a tax attorney brings to the table an extensive array of tax technical knowledge, but also can provide legal advice with regard to criminal defense, Constitutional law, and criminal procedure. Many taxpayers, participating in examinations or investigations without tax representation find themselves making incriminating statements or handing over documents that can be used against them at a trial. An experienced tax attorney will make sure that you only answer questions that you are obligated to and turn over only the documents that you are required to by law.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience assisting taxpayers in a plethora of different tax situations. From examinations to investigations and full blown litigation, our team is ready to zealously advocate for your best interests. Don’t lose sleep because of tax troubles. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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