Employers! IRS is cracking down criminally on failure to pay employment taxes!

Employers, if you have payroll taxes, it’s important to read this blog and the links that follow to understand what could happen if you fail to pay your employment taxes.

The IRS has been clamping on down employers who fail to pay their employment taxes (Forms 940/941 typically) for the past few years. Generally speaking, in the past before the trust fund penalty was enforced, the business would be responsible for the payroll tax, but not the individual who owned the business.  Recently, the IRS imposed a civil penalty called the trust fund penalty. This penalty applies to the individual owner(s) and is a personal tax owed for failure to pay FICA and social security taxes on their employees.

Now, the IRS has stepped up their punishment and in addition to those taxes and penalties, there is a criminal penalty involved for failure to pay employment taxes.

26 USC 7202 states:

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

What’s important to note here is the word, “willfully”. What does willfully mean? It’s a subjective term, but it’s going to mean something more than a mere oversight. If we are talking about back taxes of millions of dollars or collecting the taxes, but not forwarding them to the IRS that is going to definitely be willful and shall be considered tax fraud. Not having clear and organized  business practices to collect the money and pay the IRS can also get you into trouble.  I would read the link below and click on the IRS examples to get further detail on what could be considered a criminal penalty for failure to pay employment taxes.

https://www.justice.gov/tax/employment-tax-enforcement-0

These matters are always case specific, but the key thing is to never put yourself in the IRS cross-hairs in the first place! If you have any further questions about this topic, feel free to contact me.