A Georgia man pleaded guilty August 31, 2023, to seeking to obstruct the IRS in its efforts to collect employment taxes and related penalties.
According to court documents and statements made in court, from at least 2003, the defendant operated nursing homes throughout the United States and was responsible for paying to the IRS the federal income and Social Security and Medicare taxes withheld from employees’ wages. In June 2004, the IRS assessed against him personally the employment taxes he had not paid. This is also known as the Trust Fund Recovery Penalty.
Beginning in at least November 2011, the defendant took multiple steps to conceal business funds and impede the IRS’s ability to collect his outstanding tax liability. Among other things, he directed the commingling of funds among businesses he controlled and used funds for purposes other than to pay the IRS. He also caused the creation of new operating companies and bank accounts to make it more difficult for the IRS to locate assets and levy accounts. In total, his conduct caused a tax loss to the IRS of more than $9.5 million.
The defendant is scheduled to be sentenced on Dec. 4. He faces a maximum penalty of three years in prison, a term of supervised release, monetary penalties, and restitution.
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.*
