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For nationwide tax guidance, call: 212-302-9400 or toll-free at 844-653-2873.

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Steven Goldburd and Benjamin A Goldburd

Since 1983, our tax firm has skillfully represented individuals and corporations across the United States and around the globe from our offices in New York, New Jersey, California and Florida.

Business owner gets year in prison for failure to withhold payroll taxes

On Behalf of | Feb 1, 2023 | Business Tax, Criminal Tax Issues

Small business owners need to come up with a business plan, stay up to date on the workings of competitors, make sure their employees meet expectations, and make sure the business turns a profit. As if this was not enough, they also need to navigate various state and federal regulations. One of the more complex areas involve the impact of tax law.

State and federal governments expect businesses to pay certain taxes. The details vary depending on the particulars of the business, but often include payroll taxes.

Why are payroll taxes so complex?

Business taxes are generally more complex compared to individual tax returns. Aside from all the deductions and credits, business owners need to file employment tax returns every quarter. A failure to do so is likely to get the attention of the Internal Revenue Service (IRS).

Does the government really go after these types of cases?

A failure to report employment taxes is likely to trigger an investigation. Depending on the results, they could pursue criminal charges.

In a recent example, the IRS noticed that a business owner failed to file these taxes for four years. Upon review, they found evidence to move forward with various criminal charges including withholding income taxes, failing to pay employment taxes, and obstruction of IRS collection efforts. The business owner fought back, claiming the allegations were not as serious as presented. After negotiations, the business owner agreed to a plea deal for one count of not paying employee tax withholdings. The judge reviewed the case and sentenced the business owner to one year imprisonment.

Why prison time for a failure to pay employment taxes?

In this case, the judge stated there were two reasons for harsh penalties:

  • Large sum of money. The government argued the accused failed to report over $1 million in wages and withheld hundreds of thousands of dollars from the IRS.
  • Defiance. The judge also explained that the sentence was, at least in part, a result of the business owner’s failure to cooperate with the investigation. He pointed to repeated efforts to hide information establishing a “pattern of defiance” that warranted such a serious penalty.

There are two takeaways for business owners from this case regardless of their location. Although this case takes place in Wisconsin, the charges are federal and would apply anywhere in the nation. First, make sure you are in compliance with payroll and other tax obligations. Second, if the government does accuse you or your business of a tax violation, take the allegations seriously. Do not try to avoid the government or hide information from the IRS. This can only make things worse.

Although you should cooperate, it is also important to be careful about the information you provide. This is not an easy balance. The attorneys at Goldburd McCone are experienced in these matters. They can review the situation, discuss your options, and better ensure a more favorable outcome.