A federal grand jury in Denver returned an indictment on November 15, 2023, charging a Colorado woman with willfully failing to account for and pay employment taxes for several years.
According to the indictment, the defendant operated a home healthcare business. From at least 2015 through 2020, the business allegedly withheld income, Social Security, and Medicare taxes from its employees’ wages. The defendant allegedly did not timely file the business’s quarterly employment tax returns or pay the withholdings to the IRS, despite being legally required to do so. The defendant is alleged to have caused a tax loss to the IRS of more than $500,000.
If convicted, the defendant faces a maximum penalty of five years in prison for each employment tax count. A federal district court judge will determine any sentence after considering the US Sentencing Guidelines and other statutory factors.
The case is under review by IRS-Criminal Investigation and is being prosecuted by attorneys from the Tax Division.
Compliance Perspective
Issue
Payroll taxes must be deducted from each employee’s pay and submitted to the federal government according to the required schedule. Additionally, the employers’ portions of payroll tax contributions are required to be submitted routinely. Many states also have state taxes that are required to be withheld from employees’ paychecks and submitted to the state of residency. To minimize fraud in payroll, it is recommended that payroll steps be broken up between at least two individuals so that no one person is responsible for 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.
- Train appropriate staff on your procedures for processing payroll, collecting employment taxes, and submitting the taxes to the IRS. Document that these trainings occurred, and file the signed document in each employee’s education file.
- Periodically audit the payroll process to ensure that employment taxes have been collected appropriately and that these taxes have been reported to the IRS, including employer contributions.
*This news alert has been prepared by Med-Net Concepts, LLC for informational purposes only and is not intended to provide legal advice.*
