Archive for the ‘Payroll Taxes’ Category

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.

Bozo Tax Tip #7: Who Needs to Pay Employment Taxes?!

Thursday, April 7th, 2016

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 problems. 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.

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.