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The Crackdown on Employment Tax Compliance Has Begun

Offshore Account Update

Posted in on May 27, 2016

The U.S. tax system is a pay-as-you-go system, but most individual employees do not actually pay as they go. Instead, the responsibility falls on employers to withhold federal taxes and FICA taxes from employees.

Federal income tax, as well as taxes used to fund Medicare and Social Security, are supposed to be taken out of an employee's paycheck. Employers have to file tax returns and pay the IRS with money that has been withheld, as well as make required employer contributions (employers pay half of a worker's Social Security taxes).

While employers have certain requirements to comply with, many companies fail to make reports in a timely manner, follow withholding rules and pay the taxes that are due. There was more than $59 billion of tax reported on employment tax returns that remained unpaid as of September 2015, and unpaid and underreported taxes account for $72 billion in the gap between taxes owed and taxes collected in the United States.

To help try to close this gap, the Department of Justice and the IRS are teaming up to crack down on companies and on individuals who are responsible for the withholding, reporting, and payment of employment taxes.  If you or your company is at risk of being caught in the crackdown, you need to talk with a New Jersey business tax attorney as soon as possible. 

Crackdown on Employment Tax Failures Can Lead to Serious Consequences

If a company or individual fails to pay employment taxes, the consequences can be serious.  The IRS is reaching out to companies sooner to try to make sure they understand their obligations and are able to comply with them. There are also more civil and criminal enforcement actions being taken.

For example, since January 1, the Department of Justice has filed 16 complaints and has obtained 10 permanent injunctions against employers. These injunctions preclude defendants from assigning property, paying other creditors until taxes have been paid, or starting new business ventures without making timely deposits to the IRS. 

The IRS and DOJ will not only go after companies, but they also can pursue civil and criminal actions against individuals. Bookkeepers, corporate officers, manages, and treasurers have all had civil actions brought against them, and these workers can all be subject to civil penalties equal to the amount of unpaid withholdings. This is called a trust fund recovery penalty, and the DOJ helps the IRS defend challenges to penalty assessments to make sure the assessments can be collected. 

Criminal proceedings can result in more than just fines. Corporate executives and others involved in evading employment tax requirements have been tried, convicted and imprisoned for using employment taxes for personal expenses and the payment of other creditors.

If you or your business is concerned that you could end up facing an injunction, a civil penalty, a fine or even jail time, you need to take action quickly so you can find out what options you have available to you. Contact attorney Kevin Thorn to better understand your obligations and to develop a strategy to deal with unpaid employment taxes.


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