IRS Voluntary Disclosures And Criminal Employment Tax Violations

• Published date: 23 March 2022
• Subject Matter: Employment and HR, Tax, Employee Rights/ Labour Relations, Income Tax, Withholding Tax
• Law Firm: Freeman Law
• Author: Mr Matthew Roberts

Employment Tax Crimes.

Taxpayers who employ workers have obligations under federal law to withhold and remit federal employment taxes to the IRS. In addition to this withholding and payment requirement, federal law also imposes certain reporting obligations, such as filing IRS Form 941 and 940. Taxpayers who fail to comply with either of these requirements can face significant civil penalties for their non-compliance.¹ Indeed, another unique weapon commonly used by the government in these instances is the imposition of the trust fund recovery penalty, which permits the government to bypass the employer entity entirely to go after any responsible persons who made the decision not to pay the employment taxes.²

But can the failure to satisfy employment tax obligations also arise to a criminal violation of the law? The answer, of course, is yes. In fact, multiple federal criminal statutes throughout the Internal Revenue Code (the "Code") protect the government's interest in ensuring that employment tax obligations (both payment and filing) are met.³ And in recent times, the government has focused a lot of its efforts on imposing criminal sanctions against employers who fail to timely pay employment taxes and/or file employment tax returns. This article discusses those efforts. It also provides an option to many taxpayers to regain compliance with the federal employment tax laws and at the same time mitigate their criminal exposure.

Recent IRS Employment Tax Compliance Efforts.

The government's efforts to combat evasion of employment tax obligations is nothing new. For some time now, the government has made its intentions clear that it intended to crack down on violations of the federal employment tax laws. And even today, federal court decisions confirm that the government has made good on its promises. For example, recent Department of Justice ("DOJ") press releases show the following successful criminal employment tax convictions.

November 4, 2021 Press Release

Taxpayer was an office manager and bookkeeper at an architectural firm where she managed payroll between 2014 and 2018. Despite knowing that the company withheld payroll taxes from its employees' paychecks, taxpayer did not pay over taxes to the IRS, resulting in a total tax loss of $1.9 million. Taxpayer pleaded guilty and now faces a maximum sentence of five years in prison.

February 10, 2022 Press Release

Taxpayer controlled a company that sold software in automotive dealerships. He controlled the business and financial affairs of the company. From the fourth quarter of 2011 through the third quarter of 2015, taxpayer collected more than $2.1 million in withholdings from company employees and issued them Forms W-2. However, company only paid $760,000 of these funds to the IRS. Taxpayer was sentenced to 18 months in prison and ordered to serve three years of supervised release.

March 16...