A New Jersey man was sentenced on April 5, 2024, to 30 months in prison for failing to pay over $10 million in payroll taxes stemming from his ownership of several businesses.
According to documents filed in this case and statements made in court, the defendant was chief executive officer (CEO) of a company that provided administrative services to operators of nursing homes and other healthcare facilities, including at least 20 entities that he co-owned and operated.
During tax years 2017 and 2018, the defendant failed to pay over $10 million in payroll taxes to the Internal Revenue Service (IRS). He knew that payroll taxes were due and owed to the IRS at this time, but he continued to pay other business expenses and employee salaries, instead of the unpaid taxes, while tax liabilities continued to accrue.
In addition to the prison term, the defendant was sentenced to two years of supervised release and ordered to pay restitution of $11.2 million.
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 submitted 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.*
