Archive for the ‘Payroll Taxes’ Category

The 2019 Tax Offender of the Year

Tuesday, December 31st, 2019

This year really went by fast, but unfortunately there’s no shortage of candidates for the Tax Offender of the Year award. As a reminder, to be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.

The United States Congress received another nomination. The correspondent noted that Congress has abdicated looking at spending, and that’s been done by both Democrats and Republicans. I agree, but that’s not enough to win this year.

California received two separate nominations. The legislature received one for A.B. 5. That’s the new law that prohibits most independent contractors in the ‘gig’ economy. The law will likely lead to fewer independent contractors (that’s the intent of it), but won’t increase employment and will lead to a lowering of tax collections. I agree completely with the individual who sent in that nomination. However, any impacts will be in 2020 (not 2019), so I think this should be held in abeyance until next year.

The California Office of Tax Appeals ruled that an individual selling into California but with no presence in the state owes California tax. While I expect this ruling to eventually be narrowed by federal courts (potentially being completely overruled), it’s a stupid ruling and will lead to many avoiding dealing with Californians. It’s another penny-wise, pound-foolish outcome from California.

Craig Orrock of Salt Lake City received a nomination. Mr. Orrock is a former IRS employee and a former attorney. We’ll stress the word former because his conduct ensured he can’t be either ever again. From the Department of Justice press release:

Evidence at trial showed that Orrock filed tax returns for the years 1993 through 2015, but did not pay the income taxes reported as due on those returns. Orrock attempted to prevent the IRS from collecting the reported income taxes by using entities, bank accounts, and trusts in other names to hide his income and assets from IRS collection officers, filing frivolous bankruptcy petitions, and filing an offer-in-compromise falsely representing to the IRS that he had virtually no assets.  For example, Orrock used an entity known as Arville Properties LLC to conceal from the IRS his ownership of real property that he sold in 2007 for $1.5 million. In all, Orrock evaded the payment of over $500,000 in federal income taxes.

Mr. Orrock will be paying nearly $924,000 of restitution and will spend 32 months at ClubFed.


Something I’ve stated since I began this blog is that if you want to get in trouble with the IRS, one of the easiest ways to do so is to withhold employment taxes and not remit them. As far as I know, the IRS investigates all such cases.

Lawrence R. Gazdick, Jr. founded an equipment rental business in Dulles, Virginia (near Washington, DC). Mr. Gazdick’s business appeared to be successful, in that he had 70 – 100 employees. He used various names for his businesses (which isn’t an issue), with multiple bank accounts (52 in 9 different banks). He offered health insurance for his employees, with a plan from Kaiser Permanente which cost over $200,000. That’s a business that’s doing well.

Of course, since I’m writing about this, there were some issues. None of his businesses bothered filing employment tax returns, but he was diligent in withholding employment taxes from his employees’ pay. It was only $3.874 million of trust fund taxes (along with an additional $1.477 million of employer FICA taxes). Additionally, Mr. Gazdick didn’t bother to pay Kaiser for the health insurance; the check was “in the mail.”

Mr. Gazdick also didn’t file corporation or LLC taxes. It’s not clear if he needed to file Forms 1120, 1120S, or 1065 for his businesses as he held his businesses to be corporations and LLCs, but something needed to be filed. At least he was consistent: Mr. Gazdick hadn’t filed personal tax returns since at least 2000. (Some tax professional is about to get a lot of business.)

Mr. Gazdick’s business came to the attention of the IRS. This was certain to happen. Consider that employees filed their income tax returns, noting withholding of income tax (and FICA taxes). The IRS won’t find the matching payroll tax returns (Forms 941) from the employer. The IRS will easily get evidence of the problem (either by looking at the W-2s filed with the Social Security Administration and/or getting copies of pay stubs from employees).

Mr. Gazdick had an answer: I’ll just change the name of the business. He used multiple names, likely in trying to keep the IRS at bay. It didn’t work, but not for the obvious reason. (It’s certain that sooner or later the IRS would have looked into the missing payroll tax deposits.)

Mr. Gazdick was previously convicted of a felony. Convicted felons are not allowed to possess firearms. Mr. Gazdick had a firearm for his business. That came to the attention of a task force formed under “Project Safe Neighborhoods.” The goal of Project Safe Neighborhoods (which began in 2001) is reducing violent crime. The investigation likely began because of the gun. A helpful hint to anyone who is going to commit a felony with a high likelihood of investigation: Do not commit another felony which also has a high likelihood of investigation. But I digress….

It appears that the Project Safe Neighborhoods investigation led to the tax investigation. The tax case was pretty much a slam dunk given the facts (that I noted above). Mr. Gazdick has pled guilty, and has promised to make restitution of the $5.35 million in employment tax loss and the $200,000 which wasn’t paid to Kaiser. While sentencing was supposed to have occurred in October, it appears to have been delayed.


And that’s a wrap on 2019. I wish you and yours a happy, healthy, and prosperous New Year.

Bozo Tax Tip #2: Who Needs to Pay Employment Taxes?!?

Thursday, April 12th, 2018

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?


The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought!) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

Tomorrow is the last of the Bozo Tax Tips for 2018!

What Portion of the Stipulation Didn’t You Read?

Tuesday, December 5th, 2017

A company owes withholding tax to the IRS. The case goes to Tax Court, where the issues are resolved, including a stipulated amount of withholding. Somehow the IRS forgets about the withholding. It then goes to a collection Appeals, where the withholding mysteriously gets ignored. The case comes back to Tax Court when the IRS issues a levy. The Tax Court remands the case back to Appeals; however, $70,000 of the withholding still gets ignored.

The Tax Court originally looked at this case in 2008.

On April 28, 2008, petitioner timely filed a petition with the Court relating to the notice of determination of worker classification. W. Mgmt., Inc. v. Commissioner, T.C. Dkt. No. 9745-08 (filed Apr. 28, 2008). The Court, on June 11, 2009, filed two stipulations of settled issues in which the parties resolved the issues raised in the notice of determination of worker classification and agreed that respondent would credit $195,708 to petitioner’s 1995, 1996, 1997, 1998, and 1999 income tax withholding…Shortly thereafter, petitioner appealed the Tax Court’s decision to the U.S. Court of Appeals for the Ninth Circuit, and respondent assessed the taxes and additions to tax reflected in the decision. Respondent did not, however, take into account the $195,708 of stipulated income tax withholding.

So that’s the first error: The original stipulation of withholding didn’t make it into the record. Unsurprisingly, the company asked for a collection due process (CDP) hearing noting that the IRS forgot about the stipulated withholding credits.

Meanwhile, the company lost the appeal to the Ninth Circuit. But,

In its opinion the court recounted respondent’s assurance that “any credits due to * * * [petitioner] will be administratively applied to * * * [its] tax accounts after the [Tax Court’s] [d]ecision becomes final.”

Somehow during the CDP hearing the Appeals Officer didn’t consider the stipulated withholding credits. That’s the second error: Somehow the Appeals Officer didn’t read the record of the Tax Court. The company went back to Tax Court, asking that the credits be put into the record.

The Court, on October 1, 2014, remanded petitioner’s case to allow an Appeals officer’s consideration of “any credits, specifically credits for income tax withholding, to which [p]etitioner may be entitled.” Steve Lerner, the Appeals officer assigned to the remand, determined that petitioner was entitled to $195,708 of credits but applied only $125,084 to petitioner’s accounts. On April 16, 2015, Appeals Officer Lerner issued petitioner a supplemental notice of determination that again sustained the levy notice.

And we have the third error. The company (rightly) wanted the missing $70,624 applied, so back to Tax Court we go. And IRS Appeals gets (again, rightly) a black eye:

On remand Appeals Officer Lerner agreed petitioner was entitled to $195,708 of income tax withholding but inexplicably credited petitioner only $125,084. By not taking into account $70,624 (i.e., $195,708 less $125,084) of stipulated credits, he reneged on respondent’s assurances to the Court of Appeals; failed to consider relevant issues relating to the unpaid tax; inappropriately balanced respondent’s need for the efficient collection of taxes with petitioner’s concern regarding the levy’s intrusiveness; and contravened applicable law and administrative procedure (i.e., section 3402(d) and Internal Revenue Manual pt. 4.23.8.4.3 (Dec. 11, 2013)) requiring respondent to abate an employer’s employment tax liability to the extent it is paid by an employee…The administrative record belies respondent’s contention that Appeals Officer Lerner applied all of the stipulated credits to petitioner’s accounts. Because his determination lacked a sound basis in law and fact, Appeals Officer Lerner abused his discretion.

Yikes! As the Court noted, this is a case that should have been resolved on remand. Or could have been resolved the first time at Appeals. And should have been resolved way back in 2009. Consider that the company had to pay counsel for representation in a case which should never have needed to be filed. I hope the company asks the IRS to pay for their legal fees, and perhaps the IRS will pay up without the need for another trip to Tax Court. This is definitely a case where the company prevailed and the IRS’s position was completely unjustified.

Case: Credex, Inc. v. Commissioner, T.C. Memo 2017-241

Here’s a Step-by-Step Manual of How to Go to Prison for Taxes

Sunday, July 30th, 2017

Do note that I absolutely, positively, do not recommend you follow the procedures done below. But if you want to go to ClubFed for a tax crime, it’s a superb illustration.

You start a home health care business. (The business could be in anything, but I’ll use the actual example.) Your business grows and you hire employees. You correctly withhold employment taxes from your employees. So far, all is well.

You then keep the employment taxes you withhold rather than remitting them to the IRS. You do this not for one month, nor two, but for years. As I’ve said before and will doubtless say again, this scheme has as close to a zero percent chance of success. The problem is that sooner or later an employee will note the withholding on his tax returns, and the IRS will investigate why they don’t have the money. In any case, that was only the first thing done wrong.

Next, after the IRS starts snooping around you can change the business’s name and have nominees start running the business. That will deter the IRS, right? A helpful hint: This won’t deter the IRS. That was the second error.

Meanwhile, let’s not admit that the business is making money, and not report the income on your personal tax return. That will show the IRS! It will, in one sense: It will help cement an indictment for tax evasion. After all, three strikes and you’re out.

This is what was done by Dinorah Stoll-Weaver of St. Joseph, Missouri. She pleaded guilty to failing to pay over employee payroll taxes to the IRS. Given that the criminal tax loss from this scheme (it ran twelve years) is $1,459,727, a trip to ClubFed is likely in her future.

Helping the Las Vegas Economy Isn’t a Good Excuse for Not Paying Employment Taxes

Sunday, July 9th, 2017

I’m a resident of Las Vegas, so things that help the local economy are generally good. Of course, I have a bias: A good Nevada economy will help keep taxes down. Richard Tatum, Jr. of Houston helped the Las Vegas economy so I suppose I should be thankful for him. The Internal Revenue Service and the US Department of Justice have a different view.

Mr. Tatum owned an industrial staffing business. It was a large business, with about a thousand individuals working for it both internally and at other businesses. Between March 2008 and the end of 2012 the business withheld $12 million in payroll taxes. And there were $6 million of social security and Medicare taxes (the employer’s share) during the same period. However, those funds didn’t make it to the IRS. The good news is that some if helped my local economy: “[Tatum] used the money for his personal benefit, including making payments on his ranch and traveling to Las Vegas, Hawaii and France. Tatum admitted that he caused a tax loss of more than $18 million.”

As I’ve said in the past many times, if you want to go to ClubFed one of the easiest ways is to withhold trust fund (employment) taxes and not remit them. Mr. Tatum will have three years at ClubFed to think things over after pleading guilty to one count of failing to pay over employment taxes; he’ll also have to make restitution of $18,298,604. As usual, it’s a lot easier to simply pay your taxes in the first place….

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

Sunday, June 25th, 2017

…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.

Bozo Tax Tip #9: Who Needs to Pay Employment Taxes?!?

Monday, April 3rd, 2017

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?


The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

Paying Employment Taxes Is Optional…Until You Get Caught

Sunday, August 21st, 2016

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.

If You Want to Go to ClubFed…

Sunday, June 5th, 2016

…The simplest, fastest, and easiest method (via the tax world) is to withhold employment taxes and not remit them to the IRS. This is always investigated. But at least once a month I see yet another example.

Take the case of Bernard Haag of Piedmont, South Dakota. Mr. Haag was the president and sole stockholder of a corporation, and the sole member of a limited liability company. Through these entities he owned a day care facility. So far, so good. He withheld taxes from his employees’ wages. And as the Department of Justice press release notes, “…[He] willfully failed to pay over those taxes to the United States for all of 2005 through 2011, and three quarters of 2012. Haag also willfully failed to pay the employer’s portion of taxes on wages paid to employees of Big Dog and Concept Development for all of 2005 to 2012. Rather than paying over the taxes, Haag used a portion of the withholdings for his own personal use.”

Adding to his misery he filed for bankruptcy, and also was convicted of concealment of bankruptcy assets. In total, he got 18 months at ClubFed and must make restitution of over $300,000. A helpful hint that I’ve repeated for over ten years: Don’t do this! You will get caught.

Well, He Did Make At Least One Payroll Tax Payment

Tuesday, May 3rd, 2016

As an Enrolled Agent, I know that if I have employees and collect payroll tax for the employees, I had better remit it to the IRS (and state tax agencies). When I’ve been the employer, I’ve done that without fail. A CPA in Utah is alleged to do that once in twelve years. He’s also alleged to have not paid his personal income taxes for eight years.

David Bybee of Kaysville, Utah is alleged to have run several businesses. The IRS supposedly wanted him to remit his income taxes for eight years from 2000 – 2009 (2003 and 2004 were paid). The US Department of Justice was called in when the IRS couldn’t get anywhere. Mr. Bybee was indicted; he allegedly “…took steps to conceal and attempt to conceal the nature, extent and location of his assets from the IRS to avoid paying the taxes.”

I’ve repeated numerous times over the4 years that if you want to get in trouble with the IRS the easiest way is to simply not remit payroll taxes. From the DOJ press release:

A second count of attempt to evade and defeat payment of tax relates to efforts the indictment alleges Bybee took to evade paying payroll taxes to the federal government on behalf of the employees of three companies he controlled from about April 30, 2000, to about March 14, 2011. Bybee deducted and collected payroll taxes totaling at least $39,244.49 but did not report the payroll taxes with the exception of one employment tax payment of $899.32 in April 2012. Bybee was determined to be responsible for the payroll taxes and was assessed penalties totaling $47,919.06 for the unpaid taxes. According to the indictment, he has failed to make any payments.

Mr. Bybee is also accused of not remitting all the federal income tax that was withheld to the IRS. In all, a trifecta of trouble for a CPA.

Once again, you may notice that we have an individual who should absolutely know the rules on remitting taxes. And once again you may notice that we have an individual who didn’t follow through on those rules. Licensing tax professional will get rid of the lowest of bad hanging fruit, but it won’t stop bad people from behaving badly.