by Brian Mahany
Although we specialize in tax and fraud work, rarely are the two disciplines connected. A story last week from the Baltimore Sun, however, suggests that a Bel Air, Maryland payroll company was both stealing tax monies from clients and running a Ponzi scheme. That’s a double loss for victims – they lose their money and still must pay their taxes a second time.
According to the article, a company called AccuPay handles payroll for hundreds of businesses. Companies would wire funds to AccuPay who would in turn, write payroll checks, file returns and pay social security and income taxes on behalf of their clients. Payroll companies provide a valuable service for many companies allowing business owners to concentrate on making money instead of pushing paper and filling in forms.
The concept is great… as long as the payroll company is honest. According to the article, AccuPay didn’t turn over money to the IRS and state revenue department. With as many as 600 clients and with the fraud lasting years, the losses could be enormous.
Not only are the businesses out of their money, they will have to pay taxes a second time. Why? The IRS and states say that businesses are responsible for the tax. Business owners are free to delegate that responsibility to others but remain on the hook.
Worse, by not paying timely, there are also penalties and interest. If that isn’t bad enough, state and federal law say that the responsible owners and managers can be personally liable too. That means paying taxes twice, interest, penalties, tax liens, ruined credit and maybe even losing the business. That scenario makes plain old embezzlement look good!
A good tax attorney can often get the penalties reduced or eliminated and prevent the trust fund recovery penalty from being assessed against owners. A fraud lawyer may be able to get back the money.
Payroll fraud can be easily prevented by making sure your account is set up so that tax notices are sent to both the payroll company and the client. It’s also necessary to periodically check with the IRS to insure what the payroll processor reports to the IRS is the same as what is being deducted from the business.
If you are the victim of a payroll fraud, don’t wait and hope for the best. Immediate action is necessary to prevent further loss, ruined credit and maybe even to prevent the business from closing. Too often we have heard businesses tell us that they waited for several months after the problem was discovered because the payroll firm said there was an error, switched bank accounts, IRS error, etc. Those things may be true but waiting can be deadly.
The Baltimore Sun article suggests that the owners were running a Ponzi scheme meaning they were taking new money to cover up old problems. Sooner or later, Ponzi schemes collapse. While the scheme was on-going, however, the owners reportedly took much of the money to purchase nice cars and nice homes.
If you are the victim of a payroll fraud or are facing a trust fund recovery penalty for any reason, give us a call. Our tax fraud attorneys have helped many people with IRS and state revenue department problems. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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