Paying Employment Taxes Is Optional…Until You Get Caught

Two stories regarding employment taxes from the past week should serve as a reminder that paying employment taxes is only optional until you get caught.

First, an update on the individual who thought he could just create a new business entity every time the IRS asked about his paying employment taxes. Agim Zendeli owned the Ziggies chain of restaurants in Missouri; he pleaded guilty in January to not remitting $1.3 million in payroll taxes. He was sentenced to 37 months at ClubFed and must make restitution of $1.3 million (which he had previously agreed to do).

Meanwhile, out of Germantown, Tennessee (suburban Memphis) comes the story of Larry Thornton. Mr. Thornton was the majority owner of one Memphis business and the sole owner of another. I’ll let the DOJ press release tell the story:

Beginning in the second quarter of 2007, Thornton caused SEI to stop paying over the taxes required to be withheld from SEI’s employees’ paychecks and caused SEI to stop timely filing Employer’s Quarterly Federal Tax Returns, Forms 941, with the IRS. Beginning in the first quarter of 2010, Thornton caused First Touch to stop paying over the taxes required to be withheld from First Touch’s employees’ paychecks and caused First Touch to fail to timely file Forms 941 with the IRS. Between 2007 and 2011, Thornton collected more than $6.8 million in employment taxes from SEI and First Touch employees’ paychecks, but failed to pay those collected taxes over to the IRS. Thornton also failed to pay his companies’ matching share of FICA taxes during those years. During that time period, two of Thornton’s full-time accountants – both of whom were certified public accountants (CPAs) – warned Thornton about his failure to pay over employment taxes. Both CPAs resigned their positions due to Thornton’s unwillingness to comply with his employment tax obligations.

During the same years in which Thornton failed to comply with his employment tax obligations, Thornton spent more than $6.2 million from the business bank accounts on personal expenses, including house and condominium payments; vehicle, yacht and motorcycle loan payments; personal travel; and start-up funding for his wife’s beauty boutique. According to court documents, Thornton also failed to file personal and corporate income tax returns. As part of the guilty plea, Thornton admitted that his illegal conduct caused a tax loss of more than $8.9 million to the IRS.

Of course the IRS will understand spending $6.2 million on personal expenses rather than remitting your payroll taxes. I mean what’s more important: buying a yacht or paying the government? Mr. Thornton was sentenced to full restitution and to spend one year at ClubFed.

As a reminder, all employment tax remission issues are investigated by the IRS. If you want to visit ClubFed, having employees and not remitting payroll taxes is a quick and easy way to do so.

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