If You Want to Get In Tax Trouble as a Business…

…simply do not deposit your payroll taxes. As best as I can tell, the IRS investigates 100% of such violations. One Missouri business owner pleaded guilty last week to failing to pay the IRS more than $1.4 million in payroll taxes.

Payroll taxes are “trust fund” taxes. If you own a business you are personally liable for making sure those tax deposits end up where they belong. If you use a payroll service subscribe to EFTPS and you can make sure those federal payroll tax deposits are being made.

Consider what happens if you don’t make the deposits. Your employees are issued W-2s and will report the payroll taxes that were withheld. Sooner or later the IRS will wonder why that money isn’t in the system. It is basically certain this crime will be discovered. But I digress….

The Missouri business owner decided that he would throw his business ‘under the bus,’ so to speak. His first business entity accrued a $300,000 employment tax liability; he discontinued that business and started a new one with a new name (doing the same thing). The new business accrued $1 million in employment tax liability, so it was time for business number three. What did the money go for? He used some of it for new buses (the companies all provided school bus services), and he also withdrew over $286,000 for personal use.

The scheme ended (as it was almost guaranteed to be) when IRS Criminal Investigation started investigating. The business owner is looking at up to five years at ClubFed plus must make restitution. A helpful hint to anyone with cash flow problems: Pay your payroll taxes first. Any other choice is fraught with extreme danger.

Leave a Reply