Representing Individuals and Businesses with Employment Tax Issues
When a business withholds federal and state taxes from its employees’ wages, it is required to send those taxes to the Internal Revenue Service (“IRS”) and state taxing authority, in addition to other employment taxes owed. The taxes are typically reported to the IRS quarterly on Form 941, Employer’s Quarterly Federal Tax Return, and annually on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. More often than not, the failure to timely deposit employment taxes is due to financial difficulties that the business is experiencing. Even if the business lacks the resources to pay its employment taxes on time, failure to do so can result in many severe consequences, ranging from penalties to levies, to criminal prosecution. The IRS can also refer a case to the United States Department of Justice for an injunction in order to compel the business to comply with its employment tax obligations. A violation of a court’s order can result in a business owner being held in civil or criminal contempt.
Certain employment taxes, when not paid, can become the personal liability of the business’s owner, and/or whomever in the business is responsible for the payment of those taxes. Those taxes are referred to as trust fund taxes. This is described in more detail in the Trust Fund Recovery Penalty section.
The Law Office of Gerald W. Kelly is well-versed in the employment tax law, and is ready to help clients like you with your employment tax issues.
The IRS Aggressively Pursues Businesses that Fail to Pay Employment Taxes
The IRS has a full complement of weapons in its tax collection arsenal, which it may employ against non-compliant businesses. These include Notices of Federal Tax Lien, which upon filing and becoming public record can create major problems for a business’s relationships with its bank and vendors, not to mention customers and employees that might become aware of the unpaid tax liability. The IRS can, not surprisingly, attach, or levy, bank accounts, accounts receivable and other assets of a delinquent business. In most cases, Internal Revenue Code (“I.R.C.”) § 6330 affords all taxpayers the opportunity to request an administrative appeal hearing before a Notice of Levy is issued. While the request for a hearing is pending, which can continue for a year or longer, the IRS is precluded from taking enforcement action except in very limited circumstances. There is, however, an exception in the Code for non-compliant employers. A Disqualified Employment Tax Levy (“DETL”) can be issued by the IRS in cases where an employer has requested a Collection Due Process (“CDP”) Hearing within the previous two years but has continued to incur additional liabilities.
Without any question, the most potent enforcement action that the IRS can take is to target the responsible person or persons of a tax owing business for criminal prosecution. The IRS views taxpayers “pyramiding” liabilities (i.e., accumulating Form 941 liabilities for multiple employment tax quarters) as a high priority. The IRS defines “pyramiding” as an “employment tax evasion scheme” and as a “fraudulent practice where a business withholds taxes from its employees but intentionally fails to remit them to the IRS.” Many civil cases that are resolved through a routine collection alternative (installment agreement, offer in compromise, or even in-business currently not collectible status) will have very similar if not identical facts to those that are selected from criminal prosecution. Therefore, counsel must approach employment tax cases carefully, fully aware that the specter of a criminal referral is present—especially with employers with liabilities that span more than one quarterly tax period.
Extensive Experience Resolving Civil & Criminal Employment Tax Issues
I have successfully represented countless clients with employment tax issues. While many of those cases involved civil tax matters, I have also represented a significant number of clients under criminal investigation by the IRS and other federal agencies. I will zealously advocate for you and your business to resolve any employment tax issues in a manner that mitigates disruptions to your personal and business affairs. Early involvement by counsel is critical to limiting your civil and criminal exposure and developing a plan that will allow the business to continue to operate. Please contact my office to schedule a consultation.