Business Payroll Taxes Can Land You in Jail… Really!

One of the things I learned in college came from a fellow-classmate, an upperclassman about to graduate; his sage advice to me was this: do not to take courses, but rather take professors. In other words, when you find a professor who can teach, who can inspire creativity and a drive to learn, you do better and you’ll actually learn more. I applied this lesson all throughout my higher educational career, as well as into my professional practice—namely, by being choosy about the articles and journals that I read and the blogs that I follow.

Since IFCPA has a division to assist our clients with their business payroll needs, it is no surprise then that I follow Robert W. Wood’s blog on payroll taxes. Wood thinks like we do, and challenges us as well. As the Bible says, “As iron sharpens iron….” (it’s somewhere in Proverbs). Despite our proclivity to think alike, we were a little surprised to see Wood’s blog not once, and not twice, but at least three times this year on the criminal liabilities of business payroll taxes for employers! (Okay, that last one isn’t overtly about criminal liability, but it mentions the other two articles enough to suggest that criminal liability rests on the edges in a pyramiding scheme.)

It’s not common for folks to screw up business payroll taxes so badly that they end up in jail. But it IS common for folks to mess up on business payroll taxes. The biggest problem is doing them in-house. It’s tempting to try to save a buck by having your bookkeeper doing business payroll, or to do it through an online calculator of one sort or another. The problem—apart from being just plain inaccurate—tends to be the temptation (in this bottom hugging economy) to not pay the taxes at all. It’s easy to rationalize the need to pay other bills rather than business payroll taxes. After all, you can catch up in the summer months, when money’s less tight, right?!? Wrong! And it’s this kind of thinking that sometimes lands well-meaning, good hearted folks smack dab in a cell with a serial killer. (Okay, maybe not a serial killer—probably something more like a serial check kiter or a serial forger or some cyber hacker punk—maybe not as spooky, but the point is, you’re in jail!)

This scheme is known as “pyramiding” and the IRS doesn’t really entertain too many excuses when this happens. Yes, I said p-y-r-a-m-i-d, like the Bernie Madoff type pyramid. The idea is the same—when you hold money from an employee’s check, you’re holding US Gov’t money, not yours. The IRS views your use of that money as a fraud, a breach of your fiduciary duty not only to collect, but to hold and ultimately turn-over that money. It’s easy to fall into and HARD to get out of; IRS won’t make it easier, either, when they add a 100% penalty on top of what you owe. In other words, that’s some expensive financing you got yourself into. Many businesses facing this penalty simply fail (which leaves the owners and/or corporate offices on the hook for the amount owed!)

The better solution is to have someone like IFCPA do your business payroll for you. We can help you remain accountable by following up to make sure you made the tax payment (and scold you if you haven’t…) Even better is for IFCPA to do the business payroll from start to finish—that is, we produce the forms and you write us a check, then WE write the checks and send them out for you. This keeps temptation far, far away, and in the right circumstances, also saves you money, as the 100% penalty is often a bone-crushing expense most employers don’t count when they fail to pay the trust fund money to IRS.

If you find that you’re in the unfortunate spot of being behind in business payroll taxes and owing several months’ worth of payroll taxes, getting professional help right away would be a very good idea. IFCPA not only has a division for payroll, but one of our partners is also an attorney licensed in the State of Oregon and has a very strident practice appearing before and defending against the IRS. It’s an issue we handle quite a bit, often to the satisfaction—and relief—of our clients. Give us a call today.