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IRS Cracks Down on Unpaid Employment Tax


Posted on January 13, 2017

If you are a regular reader of this blog, you are aware that the IRS and the United States Department of Justice are now vigorously pursuing employment tax violations and are taking a much stricter position on civil and criminal enforcement procedures.

If you are a business owner and have employees, you are required by law to withhold taxes from their pay and to pay those funds to the IRS.  The tax withheld from employees includes all of their income tax and one-half of their FICA and Medicare taxes.  These funds are reported on the employer’s quarterly federal Form 941 tax return along with the other one-half of the FICA and Medicare tax that is required to be paid by the employer.

When an employer does not pay the withheld funds to the IRS, the business now has an unpaid tax liability due to the IRS, including penalties and interest.  The IRS will then seek payment from the business on a voluntary basis.  If the payment is not forthcoming, the IRS will then ultimately take enforced collection action against the business, including levying on its bank accounts, its credit card processor and other businesses in an effort to collect the taxpayer’s accounts receivable.  The IRS can also propose to assert the withheld portion of the unpaid liability against the owners, officers and shareholders of the business under the Trust Fund Penalty Recovery.

Failing to file a tax return is also a crime, a misdemeanor punishable by imprisonment for up to one year.  However, someone who willfully fails to collect, truthfully account for and pay over withholding tax can be found guilty of a felony, the punishment of which can include imprisonment for a period of greater than one year.

As noted above, the IRS and the Department of Justice are now vigorously pursuing employment tax violations and are pursuing stricter civil and criminal enforcement procedures.  Further, the United States Department of Justice Tax Division removed the words “infrequently prosecuted” from the U.S. Sentencing Guidelines Manual for Internal Revenue Code §7202 which provides for the criminal prosecution of any person who willfully fails to comply with his or her statutory obligation to collect, account for and pay over income tax withholding, Social Security tax and Medicare tax.

In one of our recent cases the IRS sent a letter to our business owner demanding that the business become current with its federal tax deposits within 30 days or the IRS will consider stricter civil or criminal enforcement procedures.  A copy of this new IRS letter is attached below this blog for your review.

Do you have unpaid employment tax liability due to the IRS?  Contact us, we can help.

IRS tax doc


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