by Brian Mahany
In the last several months, just about every new client call we receive involves offshore taxes and the current IRS amnesty program. There are many other tax problems, however, that can get you tossed in prison. The obvious ones, of course, are having two sets of books or hiding money in Swiss accounts. Many hard working business owners, however, find themselves in hot water over employment taxes.
Everyone knows that employees are subject to tax withholding. Some business owners try to reduce their tax bill and reporting requirements (payroll tax returns are a hassle if you do them yourself) but that is the subject of a future article.
Many businesses find themselves in a temporary cash flow bind, especially in this economy. Do I make payroll this week? Pay my suppliers? Or “borrow” money from the monies set aside for withholding? What starts as a one time borrowing of funds becomes a slippery downhill slope. By the time payroll taxes are due, the money is gone and cash flow still remains tight.
If that isn’t bad enough, some employers simply decide not to file the withholding return and hope they can just file two next time. Once again, another crime.
Before long there are many unfiled returns and thousands of dollars in unpaid taxes. Unlike income taxes, however, withholding taxes are considered trust fund taxes and it doesn’t take long for both the IRS and state criminal investigators to come knocking.
The chances of criminal prosecution are relatively low when you consider that tens of thousands of taxpayers are delinquent at least once a year with withholding taxes.
Because they are considered trust fund taxes, the state and IRS can seek to hold individuals who are officers, directors or even have check signing authority personally liable for the taxes. It’s bad enough that the business has money problems but pretty soon the owners and managers are on the hook too.
While we recommend that everyone pay all their taxes and bills, employment taxes should be a priority if there simply isn’t enough money to pay everyone. Borrowing from Uncle Sam is a recipe for disaster; its better that a supplier remain unpaid. A creditor may be able to shut down your business but the IRS can shut down the business and throw you in jail. There penalty structure is also much higher than anything you may be charged by your creditors.
If you have a tax problem, call us. The tax resolution lawyers at Mahany & Ertl have decades of experience. We can help defend you against criminal investigations, audit and IRS collections. If you are not currently in compliance, we can help you avoid prosecution and in many cases, reduce interest and penalties.
For a no fee consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at
Mahany & Ertl, LLC – America’s tax lawyers. Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services nationwide.