IRS views the income tax, Social Security and Medicare taxes withheld from employee wages as “Trust Fund” taxes.
The IRS collection efforts give a priority to collecting those taxes. The individual employees claim the income taxes withheld on their individual returns whether or not IRS received the payments from the employer.
IRS credits and/or refunds income taxes to the employees, but it will be trying to collect from the employer to avoid a net loss to the government.
Andrew Parish recently pleaded guilty to one count of failing to turn over employment taxes to IRS. He issued paychecks to employees from January to March 2009 that withheld the federal employment (income tax, Social Security and Medicare) taxes. However, he did not pay the $341,336 to IRS.
The guilty plea resulted in a sentence of 18 months in prison, a $10,000 fine and the requirement he pay the $341,336 to IRS. He also was sentenced to three years of probation.
Mr. Parish founded a website known as AdvisorHUB that gave information for stock brokers. It provided gossip, news and information on recruiting deals.
Mr. Parish worked as an adviser from 1998 until 2001 for three different broker firms. He was barred from the industry for three months for doing unauthorized trades.
Maybe the U.S. District Court in the Southern District of Ohio was very busy. Or maybe he changed attorneys and took other actions to delay enforcement. Maybe IRS was busy with Obamacare. It was recently reported that maybe 800,000 calls to IRS this year went unanswered. Maybe Congress should budget more for IRS instead of some of the items they spend money on.
Since most Nevada business owners receive IRS Notices fairly quickly if they owe taxes but don’t pay them. I wonder why it took IRS so long to take Mr. Parish to court for taxes he withheld from 2009 wages.
IRS will usually work with a business owner to get payment of Trust Fund taxes as well as income taxes. Installment Payment Agreements are fairly easy to arrange with IRS in most cases. The four IRS collection agents in Reno are reported to only be handling cases of $100,000 or more. If the amount owed is less than that, you must work with the IRS office that sends you the notices.
The moral of the story is pay the payroll taxes to IRS as required or as soon as you can.
There is a “responsible officer” penalty of 100 percent if the Trust Fund taxes not paid. A “responsible officer” is someone that had authority to pay others instead of IRS and did not pay IRS. If the company then does pay the Trust Fund taxes, the officer penalty is canceled.
Did you hear? “People do not lack strength; they lack will.” — Victor Hugo
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.