“It amazes me that people who withhold payroll taxes and don’t remit them to the IRS can get away with it.” That’s what my friend, Scott Harker, EA, said to me this morning. Yet time and again I read stories where someone decides to abscond with payroll taxes meant for the IRS. It only works until you get caught, and you’re almost always caught.
Take William Danielczyk, Jr., of Oakton, Virginia. If that name rings a bell, it’s because you remember that Mr. Danielczyk was previously sent to ClubFed for two years for illegally funneling just under $200,000 to Hillary Clinton’s political campaigns back in 2006 and 2008. (Mrs. Clinton had no knowledge of the illegal campaign contributions.) When he was sentenced he remarked, “I’ve always tried to lead by example, and I obviously didn’t do that here.”
It turns out that the campaign finance crimes were small in dollars in comparison to his payroll tax crimes. From mid-2009 through 2011, Mr. Danielczyk didn’t send $2,232,781 to the IRS from employee tax withholdings. He also didn’t send employees’ contributions to 401(k) retirement plans to the custodians; that loss was $186,263. Even after he was indicted for the campaign finance law violations he continued with this scheme! That’s chutzpah.
At least the money went to some good purchases. From the Department of Justice press release:
According to court records, instead of paying Innovative’s employment taxes and pension plan contributions, Danielczyk made a variety of purchases from company accounts. Those purchases included $505,871 for the use of an executive suite in the FedEx Field football stadium in Landover, Maryland, along with $40,000 to sponsor the Virginia Gold Cup, a series of Steeple Chase horse races held in northern Virginia.
Mr. Danielczyk was sentenced to eighteen months at ClubFed, three years of supervised release, and must make restitution of $1.6 million to the IRS.
A hint to anyone who wants to try robbing from payroll withholding: Don’t do it! The IRS investigates 100% of these violations. And it’s a certainty that such malefactions will be discovered–sooner or later (likely sooner) someone will be claiming the withheld payroll tax and the IRS won’t match it (as you took it).
If you’re an employer, this is a reminder that you should use EFTPS to verify that your payroll tax withholding has made it to the IRS. If you use employee leasing (aka PEOs), you have to find another method to verify the withholdings but you should do so. Paying payroll tax once is bad enough; paying it twice is really bad.