A federal grand jury in Nashville returned an indictment on October 16, 2024, charging a former mental health center owner with willfully failing to account for and pay over employment taxes to the IRS.
According to the indictment, from at least 2011 through 2023, the defendant, of Columbia, South Carolina, was the owner and president of a mental health counseling center with multiple locations in middle Tennessee. She was responsible for managing the center’s financial affairs, including withholding Social Security, Medicare, and federal income taxes from employees’ wages and paying these amounts to the IRS. From at least 2015 through 2020, she allegedly withheld these taxes but did not fully remit them to the IRS.
Each year, from at least 2015 through 2020, the defendant allegedly issued IRS Forms W-2, Wage and Tax Statements, and paystubs to the employees that showed taxes taken out of their pay, which falsely implied that the withheld taxes were paid over to the IRS.
The total tax loss attributed to the defendant exceeds $1 million. She faces 11 counts of willfully failing to account for and pay over employment taxes. If convicted, she could receive a maximum penalty of five years in prison for each count, along with supervised release, restitution, and monetary penalties. A federal district court judge will determine the final sentence based on the US Sentencing Guidelines and other relevant factors.
Compliance Perspective
Issue
Employers are required to deduct payroll taxes from each employee’s paycheck and submit these taxes to the federal government according to a specified schedule. This includes both the employees’ and employers’ portions of payroll tax contributions. Many states also mandate the withholding of state taxes from employees’ paychecks, which must be submitted to the state of residency. To minimize the risk of fraud in payroll management, it is recommended that payroll responsibilities be divided among at least two individuals. This helps ensure that no single person has control over the payroll process, including deductions, payroll processing, disbursement, and distribution of payroll. Violations of payroll management can be considered fraud and can result in fines and imprisonment.
Discussion Points
- Review your policies and procedures on payroll management, including collecting employment taxes and submitting them to the IRS. Update your policies as needed.
- Ensure that relevant staff members are trained on the procedures for processing payroll, collecting employment taxes, and submitting these taxes to the IRS. Document these training sessions and keep signed acknowledgments in each employee’s education file.
- Conduct periodic audits of the payroll process to verify that employment taxes have been collected accurately and reported to the IRS, including employer contributions. This proactive approach can help identify any discrepancies early and ensure compliance.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*
