A Virginia man was sentenced on February 25, 2025, to two years in prison for willfully failing to account for or pay employment taxes.
Court documents show that the defendant, 63, was the sole owner and operator of several sleep disorder centers in central Virginia. Although he withheld federal trust fund taxes from his employees’ wages, he failed to report or remit these withholdings to the Internal Revenue Service (IRS), instead using the funds for personal purposes. Trust fund taxes include federal income tax withholdings, as well as employee contributions to Medicare and Social Security.
From at least the first quarter of 2015 through the last quarter of 2020, the defendant did not file an IRS Form 941 (Employer’s Quarterly Federal Tax Return) for any of his sleep disorder companies, nor did he make any trust fund tax payments to the IRS. Despite this, he issued W-2 forms to his employees, indicating he had withheld at least $311,985 in trust fund taxes during this period. Additionally, he failed to pay the employer’s share of Medicare and Social Security contributions, totaling at least $148,558.
In total, the defendant failed to pay at least $460,543 to the IRS.
During the period he neglected to pay the required employee withholdings and matching amounts, the defendant had access to significant company funds, which he used for lavish personal expenses, including:
- Monthly rent of $5,000 for a 215-acre horse farm and residence (as well as a prior residence), totaling over $220,000;
- $500 to $1,000 per month for work on his personal residence, totaling approximately $30,000;
- Nearly $40,000 for life insurance premiums;
- Tuition and related educational expenses for his significant other’s daughter;
- The purchase of a Ford F600 truck.
Compliance Perspective
Issue
Employers are required to deduct payroll taxes from employees’ pay and submit them to the federal government on a timely basis. Employers must also submit their portion of payroll tax contributions regularly. Many states have additional state taxes that must be withheld from employees’ paychecks and submitted to the respective state. To minimize the risk of fraud in payroll management, it’s recommended that payroll tasks be divided among at least two individuals, ensuring no single person is responsible for deductions, processing, disbursement, and distribution. Failure to properly manage payroll taxes can lead to violations of tax laws, resulting in fines, penalties, and even imprisonment.
Discussion Points
- Review your payroll management policies and procedures, focusing on the collection and submission of employment taxes to the IRS. Ensure that your policies comply with current tax laws and make updates as needed.
- Provide training for relevant staff on payroll processing, employment tax collection, and submission procedures to the IRS.
- Conduct periodic audits of the payroll process to verify that employment taxes have been correctly withheld and reported to the IRS, including the employer’s contributions. This helps ensure continued compliance and early identification of any discrepancies.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*
