Archive for the ‘Payroll Taxes’ Category

Use EFTPS If You Use a Payroll Service

Sunday, April 28th, 2013

Most payroll services are reputable. They help companies comply with the myriad of laws and regulations in payroll by preparing payroll checks, paperwork, and even sending the withheld payroll taxes to the IRS and state tax agencies.

Of course, where most won’t go the Bozo wing of payroll services happily head to. From Maryland comes the story of AccuPay. The payroll company is accused of failing to remit payroll taxes to the IRS and Maryland. After local police investigated, the company filed a Chapter 7 bankruptcy case. The owner of the firm refused to testify (citing the Fifth Amendment right against self-incrimination).

The stories read horribly, with some owners having to take out loans, and other firms perhaps going out of business. Yet there’s a way today to make sure your payroll tax company is remitting your taxes: EFTPS. It takes about two weeks to enroll (passwords will be mailed to you). Once you are enrolled, you can see your payroll tax remittances. There’s no reason to be a recurring victim of this kind of theft.

Senator Barbara Mikulski (D-MD) will be proposing a bill that would require payroll firms to register with the IRS and be bonded or certified by the IRS. I oppose this, because it’s not needed. Use EFTPS and you can see for yourself if your payroll taxes are making it to the IRS.

The Problem with PEOs

Monday, January 7th, 2013

Sometimes I have the right idea but don’t consider the full spectrum of issues. That’s the definition of a blind spot, and with my post on the $7 million tax fraud yesterday, I had a big blind spot. Thankfully, some of my fellow tax accountants noted the issue.

Joe Kristan noted the problem with Professional Employer Organizations (PEOs):

PEOs that file taxes under their own names and ID numbers have a hidden danger: their clients can’t verify that the IRS has received their payments via the Electronic Federal Tax Payment System (EFTPS). Employers can use EFTPS to monitor payments when they use a payroll service that reports employee taxes under the employer’s own name and Tax ID number. This makes it necessary for taxpayers to investigate PEO-type providers very carefully before trusting them with payroll services. If your payroll taxes are stolen by your payroll provider, the IRS will come after you to collect. Not many employers can afford to pay payroll taxes twice. [emphasis in original]

As noted by Joe and Ann-Margaret Johnston (in a comment to my post), you can’t check PEO tax payments. This means that if you use an unscrupulous PEO, you’re out of luck; the IRS can come after you for the unpaid payroll taxes.

Does this mean you shouldn’t use a PEO? Of course not; there are many PEOs that are well-run. It does mean that you need to be very, very careful using a PEO; you need to check references; you may want to get periodic copies of payroll tax deposits made for your “employees.” Other than that, there aren’t many reliable solutions to this dilemma.

What’s $7 Million Among Freinds?

Sunday, January 6th, 2013

Arthur Weiss had a successful business running various professional employer organizations (PEOs). For a fee, his business would pay employees, remit taxes to the IRS and states, file tax returns, and provide workers compensation insurance. It turns out his fee was slightly larger than advertised.

Mr. Weiss did take in all the money, and he did pay employees. It was was the remitting of payroll taxes to the government that he didn’t like to do. Instead, he lived the good life enjoying jewelry, Ferraris, Lamborghinis, and Porsches. The amount of payroll taxes not remitted to just the IRS was over $4 million.

But that’s not all! The workers compensation premiums also lined Mr. Weiss’ pockets, so employees who got hurt weren’t covered (nor were employers).

But there’s more! Mr. Weiss decided to commit insurance fraud. He reported four pieces of jewelry worth $177,480 lost or stolen. They were found during a search of his former home. Oops….

Like a bad informercial, there’s yet even one more crime: bank fraud. Mr. Weiss decided to get some loans. Instead of showing the tax returns he submitted to the IRS, he made up new returns which, of course, showed more income than he reported.

Sooner or later this fraud was bound to be discovered. And it was, with Mr. Weiss indicted last June. He pleaded guilty in October. He was sentenced last week to more than 15 years at ClubFed. He also must make restitution of $7 million to his victims. Given that bankruptcy fraud was among the crimes he was accused of, it’s likely restitution will be a long time in coming.

This brings up the key point of this case: If you use an outside payroll company, you must make sure they remit your payroll taxes. For the IRS, there’s an easy way to do this. Simply enroll in EFTPS, and you can verify that the payroll deposits are being made. “Trust but verify” is a good motto when dealing with payroll. Why is this important? Because paying payroll taxes is bad enough the first time; to have to pay them twice is very bad. Yet if your payroll company does what Mr. Weiss did (abscond with the payroll deposits), that’s what will happen to you. A one-time registration followed by periodic checking up which takes just a few seconds can prevent this.

Note that this is not doable for a PEO. Please look at my new post on PEOs.

I’m sure many of Mr. Weiss’s clients wish they had done this.

Attorney Gets Tax Lien, Then Allegedly Commits Tax Evasion

Sunday, July 22nd, 2012

Lee Gottesman is a bankruptcy attorney in Toms River, New Jersey. He is also facing a heap load of tax troubles for some of the usual reasons.

According to the Department of Justice, Mr. Gottesman allegedly created a sub account within his attorney trust account after he had a tax lien filed against him in 2002. That account was for his wife…but his wife supposedly wasn’t a client. Then he allegedly ran all his expenses — both personal and business — through that sub-account. Adding to his troubles, from 2006 through 2009 Mr. Gottesman supposedly didn’t file tax returns…while allegedly earning more than $400,000. According to the indictment, Mr. Gottesman had a CPA prepare tax returns; he just couldn’t be bothered to file them. That’s tax evasion. The indictment noted that Gottesman, “…created and began to use the Sub Account to deposit business income and to pay personal expenses after the 2002 Tax Lien due to his belief that the IRS could not levy the Gottesman [Attorney Trust Account].”

But the reason he likely got into trouble is something that I’ve mentioned over and over again: Withholding payroll taxes but not remitting them. If you do this, you will be investigated. The indictment states, “He [Gottesman] knew that he was required to pay payroll taxes to the IRS, but that he had not.” Given that he allegedly collected (withheld) taxes on his employees but didn’t remit them, that’s a huge mistake. That’s another 15 counts to go with the four counts of tax evasion.

I look at the press release and the indictment and have to wonder. An attorney knows (or should know) the rules regarding taxes. He apparently had good advice from a CPA. He practices in bankruptcy, so he knows that there are alternatives to simply not filing and paying taxes. Yet Mr. Gottesman allegedly committed numerous felonies–and apparently admitted doing so to investigators.

Now He Gets to Watch Paint Dry

Sunday, July 1st, 2012

Willard Douglas Kerr of Phoenix operated DK Coatings, LLC, a painting and wall covering company in Manassas, Virginia. Mr. Kerr had many employees, and the business was apparently successful.

Mr. Kerr also had some pressing needs at home. He needed a new car. His swimming pool needed repairs. He also wanted to put more money into his business. So he did what you should never, ever do: He didn’t remit his federal trust fund taxes.

As I’ve said over and over, if you have employees and don’t remit your trust fund taxes, the IRS will come after you. It’s only a question of when, not if. If you’re an employer make sure you sign up for EFTPS and check to make sure that your trust fund taxes are being remitted; you will be held responsible if they’re not. That’s why you absolutely positively need to use a reputable payroll company. But I digress….

In any case, Mr. Kerr’s actions were discovered. In April he pled guilty to tax fraud; on Friday he was sentenced to 24 months at ClubFed. He must also make restitution of the $1,111,352 in taxes he owes to the IRS. Now he’ll get to watch the paint he sold dry.

Bozo Payroll Tax Scheme Lands Woman in ClubFed

Sunday, June 3rd, 2012

As I’ve said repeatedly, if you want to get in trouble with the IRS simply don’t remit payroll taxes that have been withheld to the government. You are certain to be investigated, and if any wrongdoing is found the investigation will quickly turn into a criminal probe. This story is about a rather

Nasheba Necia Hunte and Elmo Antonio George formed Winco Holdings Inc in Florida. George and Hunte were the only officers of Winco. They had no employees and paid no wages. Yet Winco filed employment tax returns for 2005-2007 showing substantial tax withholdings…withholdings that never happened. They even sent a rubber check for $1,676,991.16 to the IRS for Winco’s non-existent payroll tax obligations. The check was returned, “contact maker for authority to pay.”

The scheme gets more complex. The pair filed corporate tax returns for 2005 and 2006 that had phony partnership losses passing through to the owners as individuals. This generated refunds of $241,807. These funds were deposited into yet another entity, Dikingdom. The funds were used to buy a home in Georgia; George deeded the home to the “Overseer of Dikingdom” and claimed a church owned the property.

Ms. Hunte then made the not-so-brilliant decision to lie to investigators from IRS Criminal Investigation; she told them she wasn’t who she was. She also changed her address to a non-existent address.

In the end, this was all for naught. The pair were arrested for conspiracy to defraud the IRS and were tried and convicted. Both were also found guilty of two counts of filing false tax returns. She was sentenced last week to 51 months at ClubFed and must make restitution of just over $229,000 to the IRS.

My helpful advice to those considering schemes to defraud the IRS related to payroll withholding: Don’t. Sooner or later, usually sooner, the IRS will investigate and your scheme will fall apart.

On the Bright Side, Lawns Need Mowing at ClubFed, Too

Monday, May 28th, 2012

If there’s been a constant theme in this blog, it’s that if you monkey around with payroll taxes bad things will happen to you. Unfortunately, Michael Cioffi of Loxhatchee, Florida isn’t a reader of this blog.

Mr. Cioffi operated a very successful lawn service; back in 2005-2006 he employed 30 individuals. Mr. Cioffi paid his employees but didn’t withhold any payroll taxes. Sooner or later an employee will file his own income tax return and the issue of social security will arise. If you want to get in trouble, Mr. Cioffi definitely went down the right path.

Undoubtedly, the IRS began an investigation. When they discovered his 2006 return showed just under $800,000 of the over $2 million of gross receipts from his law business, a criminal investigation was a certainty. Mr. Cioffi pleaded guilty to one count of failing to account for and pay payroll taxes and one count of filing a false tax return. He’ll likely get to visit ClubFed in the near future.

It Only Works Until You Get Caught

Thursday, May 3rd, 2012

One of the recurring themes of this blog is that a business owner must pay his payroll taxes. The government considers Trust Fund taxes to be their money and they will always investigate payroll tax crimes.

Similarly, workers compensation is sometimes run through government and pseudo-government agencies. In California, there is the State Compensation Insurance Fund. The State Fund is a non-profit public-enterprise fund run like a mutual insurance company. However, it was created by the state of California. That makes it a pseudo-government agency. It’s a very bad idea to commit fraud against the government; it’s even worse to get caught.

George Osumi II has a construction business in Irvine. He apparently has his workers compensation insurance through State Fund. Mr. Osumi allegedly had a unique and, if proven, quite illegal method of lowering his insurance costs: He reported on his workers compensation report $3.5 million less in payroll than his actual payroll. That did allegedly save him several hundred thousand dollars in insurance costs. It’s also a felony. And since Mr. Osumi is alleged to have done underreported his wages 18 times, that’s 18 felony counts.

Adding to Mr. Osumi’s problems is that he is also alleged to have withheld state taxes and not remitted them. State tax agencies are just as certain to go after business owners as the IRS if you don’t remit withheld taxes. In total, Mr. Osumi faces 71 felony counts including perjury (he’s alleged to have lied to the State Contractor’s Board in stating that his business did not require workers compensation insurance), identity theft, and a host of state tax charges. Mr. Osumi is looking at up to 63 years in prison if found guilty on all the charges.

News Reports: OC Register, Daily Pilot

Cash and Carry Didn’t Work

Saturday, July 23rd, 2011

There’s nothing wrong with paying employees in cash. Indeed, in some industries it’s the norm. However, you still must withhold payroll taxes and properly report the earnings. The owners of a Massachusetts temporary agency found that out this week.

Michael Powers and John Mahan owned Commonwealth Temporary Services, Inc. in Stoughton, Massachusetts. Powers and Mahan believed that if it wasn’t written down or reported, it didn’t happen. Unfortunately for them, the US Department of Justice proved that they paid employees more than $25 million in cash and didn’t report it. They did save $7 million in taxes (and saved more on workers compensation).

But they’re not going to get to enjoy that money; they were convicted of one count of conspiracy to defraud the Internal Revenue Service and their workers compensation insurers, one count of mail fraud and two counts of false tax returns. Instead of making a little less money but complying with the law, they’ll likely pay a lot of fines and enjoy ClubFed.

As I’ve said before, the government takes trust fund taxes very seriously. This isn’t the area to mess around in.

I Hope You Enjoyed that $2.4 Million

Monday, July 18th, 2011

I’ve said this before, and I’m certain I’ll say it again: If you want to get in trouble with the IRS, the fastest way to do so is to not remit your federal employment taxes. These are called trust fund taxes, as employers remit money held in trust for the federal government. It’s the government’s money, and they want it.

That lesson has now been learned by Frank Bivings and his wife, Isabelle Blanco. The Washington D.C. residents own the Bivings Group, an Internet communications firm. With 30 employees (according to their web site), they certainly have employment taxes. However, the husband and wife felt that paying themselves larger salaries was more important than remitting those taxes. According to the Department of Justice, $1.8 million of the $2.4 million that wasn’t remitted were federal trust fund taxes. It’s probable the rest were local (District of Columbia) taxes, and that’s nearly as bad: The District is federal land.

Mr. Bivings pleaded guilty to one count of failing to pay employment taxes; Ms. Blanco pleaded guilty to one count of failure to pay a tax. Mr. Bivings’ charge is by far the more serious; he’s looking at a stay in ClubFed of 30 – 37 months. Ms. Blanco is likely to receive probation. The husband and wife have agreed to make restitution of the unpaid employment taxes.

I’ll repeat this again: Make sure that when you collect federal trust fund taxes that you remit them.