Lately all the media attention has been focussed on individuals with unreported foreign accounts. The IRS and Justice Department continue to prosecute routine tax evasion cases, however. As one Salt Lake City man recently learned, there are many other tax problems that can send you to prison. Last week a federal judge sentenced Richard Whatley to 51 months in prison for willful failure to account for payroll taxes. When he gets out, he must pay $540,000.00 in restitution.
Prosecutors say that Whatley ran three different employee leasing companies. As an owner, he had the ability to determine which debts were paid. Evidently, payroll taxes were not high on his list.
Federal law and the laws of most states say that business owners, officers and directors can be held responsible for unpaid trust fund taxes if they have the ability to control which debts are paid. Trust fund taxes include payroll taxes (withholding tax), sales tax and certain employment taxes. On the civil side, the IRS can transfer the tax to anyone they feel is responsible for the unpaid debt. This is called a trust fund recovery penalty. Some states call it a transfer assessment or responsible individual assessment.
It’s not just civil liability that owners and officers need to worry about. If the IRS believes the failure to pay was willful, criminal charges such as failure to file, failure to pay, tax evasion or willful failure to account charges may follow. The latter two charges are felonies.
According to court documents, the actual tax loss associated with Whatley’s criminal conduct totaled more than $2.3 million. Although the court imposed civil restitution of approximately $500,000.00, Whatley will still be obligated to pay civil penalties and interest to the IRS.
The lesson in this case is obvious. Businesses fail everyday. Bankruptcy courts can give businesses and their owners a new start but not for trust fund taxes. Those can send you to prison. Tax evasion and other criminal charges are a real danger whenever payroll or employment taxes are not paid.
If you need help with criminal tax defense or need an experienced tax evasion lawyer, give us a call. Mahany & Ertl is a full service, national boutique practice concentrating in tax matters including tax evasion investigations, IRS audit defense and trust fund recovery penalty assessments. Founding partner Brian Mahany is a former agent and Assistant Attorney General – Tax. Let us bring our decades of experience to help preserve your freedom.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.
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