Federal tax law seriously addresses an employer's payroll obligations—very seriously.
Every employer knows the big bite that payroll taxes take out of revenue, adding substantially to labor costs while reducing the cash available for other critical business needs. The pandemic has made paying current taxes and other obligations much harder for many employers. The temptation may be to pay other costs before satisfying payroll obligations.
Don't. Congress did not want employers taking payroll-tax obligations lightly. In certain cases, federal law makes avoidance of payroll taxes a serious crime punishable not only by hefty fines but also imprisonment. Federal tax law also creates pass-through liability for individuals who control the employer's delinquent payment of payroll taxes.
How likely are these bad consequences? The IRS's Criminal Investigation unit pursues thousands of criminal cases each year, with over ninety percent of referrals resulting in conviction or guilty plea. Around four out of five convictions result in prison time averaging nearly four years. And imagine being personally liable for your company's payroll taxes.
Just ask actor Wesley Snipes who, after serving most of a three-year prison sentence and incurring a federal tax lien for millions in unpaid income taxes, recently admitted that he's learned the value of time—a hard way to learn a lesson. Or ask Texas software CEO Robert Brockman who faces federal criminal charges in an alleged $2 billion tax-evasion scheme.
So, when you can't pay your business's payroll taxes, don't ignore them. Don't let your emotions take control. Instead, seek legal counsel experienced in tax matters. The crime is more often in avoidance and coverup. Better to deal up front with tax matters.
And above all, don't brag about cheating the government, as federal prosecutors allege rapper Fontrell Baines did in his recent music video. Federal agents recently arrested Baines, who goes by the stage name Nuke Bizzle, on federal charges carrying a sentence up to twenty-two years.
Frazer Ryan Goldberg & Arnold is a nationally recognized law firm that meets and exceed the high expectations of closely held businesses. Call Senior Partner, Tax Controversy Attorney, Brandon A. Keim at (602) 200-7399 to consult with its tax-defense team.