Archive for the ‘Payroll Taxes’ Category

A 0% Chance of Success Didn’t Deter Him!

Sunday, September 20th, 2015

Ronald Reagan said, “Facts are stupid things.” Well, one fact that I’ve mentioned in the past is that IRS Criminal Investigations looks at all allegations of employment tax fraud. The reason is obvious: The IRS doesn’t like the idea of people stealing from them. I’ve been saying this for the ten-plus years that I’ve been writing this blog.

Andrew Parish of Chillicothe, Ohio apparently doesn’t read this blog, and also apparently didn’t consider how his scheme would fail. Mr. Parish hired a firm to prepare his payroll and send the reports to the IRS and Ohio–all well and good so far. He then decided to issue paychecks directly. That wouldn’t have been an issue if Mr. Parish had told his payroll company. I’m sure you’re a couple steps ahead of me: He didn’t, nor did he issue his own payroll reports. But he did include the withholding on the paychecks.

The employees naturally included this withholding on their tax returns. That withholding wasn’t going to match IRS records, and sooner or later the IRS was going to investigate. When the amount missing matched the amount of those paychecks, it wasn’t going to take a genius to figure out where the error occurred.

(An interesting digression: This past April one of my clients received an IRS notice because the withholding on his return didn’t match IRS records. I looked at the W-2’s (my client had multiple employers) and they matched perfectly. It turns out that the error is exactly the amount of the withholding from one employer, and that money apparently hasn’t made it to the IRS. My client is a pack-rat, and had all of his paychecks and his W-2’s, and everything tied perfectly. The IRS requested a copy of those records; it is a near certainty that IRS Criminal Investigations is looking into this. But I digress….)

As for Mr. Parish, he pleaded guilty earlier this year to failing to account for and pay over employment taxes to the IRS. He was sentenced to 18 months at ClubFed and must make restitution of $341,336. A helpful hint to those thinking of not remitting employment taxes: This had a zero percent chance of success in 2005 and the odds haven’t improved in the last ten years.

A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS

Sunday, June 28th, 2015

Barry Ginsberg operated a payroll tax service in Peabody, Massachusetts (near Boston). He endorsed escrow accounts for his clients; they would send him the money for the payroll taxes and he, in turn, would pay them. Since I’m writing about this, you’ve already figured out where the money didn’t go: to the IRS and the Massachusetts Department of Revenue. Mr. Ginsberg, who was indicted back in 2013, pleaded guilty to multiple tax fraud charges on Friday.

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

Mr. Ginsberg will likely be spending years at ClubFed. Unfortunately, the business owners who trusted him may be spending years getting out of debt with the IRS and Massachusetts.

This Never Works…

Sunday, February 1st, 2015

If you want to go to prison for tax evasion, there’s an easy method: Withhold payroll taxes and don’t remit them to the IRS or your state tax agency. The government investigates all such actions (or should I say inactions). One New York businessman will likely have some time to think that over.

Patrick White is the owner of R & L Construction in Yonkers, New York. He liked his home and he liked to gamble. There’s nothing wrong with that. He took payroll taxes withheld from his business and used that money for his homes and for gambling. There’s a lot wrong with that, especially when it totals $3,758,000. Mr. White pleaded guilty to one count of failing to pay over payroll taxes to the government. He’ll be sentenced in May.

This is a good time to point out that if you are a business owner, you should check to make sure your payroll taxes are being sent to the IRS. You can do so by using EFTPS. You’re personally liable for those taxes, so it’s worth verifying the money makes its way where it belongs. If you use employee leasing (a PEO), you can’t verify this by EFTPS so you will need to find a different method of doing so.

It Never Works, But They Keep Doing It

Sunday, September 14th, 2014

“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.

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.