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Tag Archive for Payroll Taxes

Reliance On A Third Party As A Defense In Section 7202 Payroll Cases

Reliance On A Third Party As A Defense In Section 7202 Payroll Cases

Section 7202 of the Code makes it a felony for any person to willfully fail to collect and pay over payroll taxes to the IRS.  Put simply, a taxpayer may be subject to jail time if the government merely proves that the taxpayer:  (1) was responsible for paying over payroll taxes; and (2) willfully failed to do so.

In many cases, business owners have difficulties rebutting the government’s contention that they are responsible persons. Thus, the issue of whether the business owner was willful in his conduct becomes a crucial issue.

Late last year, the Department of Justice (DOJ) issued a press release regarding the criminal indictment of Mr. Thrush, a business owner in the State of Michigan.  According to the press release and the allegations in the indictment, Mr. Thrush failed to pay $238,223 in payroll taxes over a two year period.  Moreover, Mr. Thrush allegedly failed to file income tax returns for three years related to his business income.  That case has proceeded towards trial.  See U.S. v. Thrush, No. 1:20-cr-20365 (E.D. Mich.).

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Research Credit Can Offset Payroll Taxes For Small Businesses

Does your small business engage in qualified research activities? If so, you may be eligible for a research tax credit that you can use to offset your federal payroll tax bill.

This relatively new privilege allows the research credit to benefit small businesses that may not generate enough taxable income to use the credit to offset their federal income tax bills, such as those that are still in the unprofitable start-up phase where they owe little or no federal income tax.

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Severance Payments Ruled Subject To Payroll Taxes

The IRS has long held that severance payments from an employer to an employee are wages. As such, they are subject to income, as well as payroll taxes that include social security and Medicare. In a 2014 case (U.S. vs. Quality Stores) a Michigan court ruled otherwise – that social security and Medicare taxes are not due and payable on severance payments. The Sixth Circuit Court of Appeals, surprisingly, upheld the lower court ruling.

This ruling put the IRS in a bind. If the ruling were to stand and be applied nationwide, hundreds of millions of dollars could be at stake. Indeed, in a matter of months, over 3,000 claims for payroll tax refunds were filed with the IRS. All of these claims were disallowed if not coming from the Sixth Circuit. The IRS then appealed to the United States Supreme Court. Read more

When Payroll Taxes Pyramid It Means Penalties, Even Jail

The IRS does pursue all taxes equally. The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government. The IRS calls it trust fund money that belongs to the government.
That makes any failure to pay—or even late payment—much worse.

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts. Read more