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What tax mistake could get you in criminal trouble?

| Jan 19, 2021 | Criminal/Civil Tax Litigation |

Failure to pay your company’s payroll taxes. Time and again, business owners and chief financial officers take liberties with payroll taxes only to end up under criminal investigation by the IRS. Moreover, you could be personally liable for the taxes.

Here are a couple of recent examples of failure to pay payroll taxes that ended up on Accounting Today’s Tax Fraud Blotter:

Hoarding disorder not an excuse

A Toms River, New Jersey, man was convicted in 2019 of two counts of failure to remit payroll taxes withheld from employees and another count of making false statements on a loan application. In 2020, he was sentenced to a year and a day in prison.

Now 71, the man appealed his payroll tax convictions last year, arguing, among other claims, that he has a “hoarding” disorder that caused him to spend lavishly on his own expenses rather than remitting payroll tax payment to the IRS. He argued that he had not been allowed to bring psychiatric testimony about the alleged hoarding disorder.

The U.S. Court of Appeals for the Third Circuit rejected the hoarding claim, agreeing with the IRS that the psychiatric testimony had been excluded properly.

Failure to file and pay taxes results in very large bill

In the second case, a Walled Lake, Michigan, business owner was sentenced to two years in prison over her failure to file and pay employment taxes.

According to Accounting Today, the sports bar owner filed only two of 29 required employment tax returns between 2008 and 2015. The unpaid employment taxes amounted to approximately $1.3 million.

Also, she sold the business for around $5.9 million but failed to file an individual tax return or pay any taxes in 2012, the year she sold the business. That resulted in an additional tax bill of $463,000.

The woman pled guilty in 2019. On top of the two years in prison, she has been ordered to pay $1,793,771 in restitution to the IRS.

Failure to pay payroll taxes can results in both criminal liability and orders of restitution, in many cases. It’s never a good idea to gamble that the IRS won’t catch on.

If you are behind on employment or payroll taxes, discuss your situation privately with an experienced tax attorney.