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December 21, 2011 by msquaredlaw

The IRS looks very harshly upon employers who do not file their payroll returns or pay their payroll taxes.  This is especially true with respect to amounts of income tax and FICA tax withheld from employees’ wages.  Employers are considered to assume a fiduciary duty to remit these amounts to the IRS on behalf of the employees.    The IRS does not take into consideration whether the tax delinquency is a result of cash flow problems or severe financial loss.  Unpaid payroll taxes can expose your company and you, personally, to severe civil penalties and even criminal consequences.   If you have fallen behind on required tax filings or payments, you need immediate legal counsel and representation of a tax attorney.

Still don’t believe us?  Consider the case of Victor Manuel Amaya, a Miami businessman who owned Amaya Contracting and Stucco Inc. (ACS).  Amaya filed fraudulent employment tax returns with the IRS and underpaid federal employment taxes.  To avoid having to pay payroll taxes, Amaya regularly cashed checks made out to ACS at check-cashing stores (rather than depositing them into ACS’s account),  then used this cash to pay his workers.  Amaya also wrote checks to fictitious companies and cashed them at check-cashing stores, using the cash to pay his workers.  Amaya did not report these cash payments to workers as wages on ACS’s employment tax returns, resulting in lower payroll taxes.   The IRS busted him and determined that he failed to report more than $2 million in wages, resulting in a tax loss to the United States Treasury of approximately $319,585.  He was convicted and sentenced to 24 months in prison and ordered to pay $319,585 as restitution.   THIS IS SERIOUS.

Trust Fund Recovery Penalty. 

If federal income, social security, and Medicare taxes that must be withheld from employees are not withheld or are not paid to the United States Treasury, the IRS may impose the “trust fund recovery penalty.”  This penalty is civil in nature and is equal to the full amount of the taxes that were not withheld and/or not remitted to the IRS.

If the IRS is unable to immediately collect these unpaid taxes from the employer/business, the trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

One.  Responsible Person.

A responsible person can be a business owner, officer or even just an employee of a company who has financial control over bank accounts such as authority to sign checks for the business or otherwise has authority to cause the spending of business funds.  There may be more than one responsible person and the IRS may attempt to collect from any one of them.

Two.   Willfulness.

Willfully means voluntarily, consciously, and intentionally.  A responsible person acts willfully if the person knows the required actions are not taking place.  A responsible person need not have failed to withhold or pay over the payroll taxes with a fraudulent or evil purpose.  That person must merely be shown to have knowingly and intentionally disregarded the duty to pay trust fund payroll taxes to the IRS.  In fact, it is the IRS’s position that willfulness exists when money withheld from employees as taxes, in lieu of being paid over to the government, was knowingly and intentionally used to pay the operating expenses of the business, or for other purposes.

Payroll Tax Filings or Payments Delinquency.    

If you are delinquent on payroll tax filings or payments, the most obvious course of action would be to file all required returns and pay your taxes immediately.  If you simply cannot pay your taxes currently, you need to contact the IRS and make payment arrangements.   Do not wait for the IRS to contact you!  Be proactive!  Due to the seriousness with which the IRS views payroll tax delinquency, it is a very good idea to obtain the professional representation of a tax attorney.

How We Can Help You. 

  • We can represent you in a payroll tax audit or any other investigation into tax improprieties involving your business.
  • We can handle all aspects of “responsible person” interview conducted by the IRS to determine responsibility for failures in payroll tax compliance.
  • We can advocate for you in a disputed matter involving classification of individuals as employees or independent contractors or review your classification procedures before a problem even occurs.
  • We can dispute inaccurate assessments of trust fund penalties.
  • We can negotiate on your behalf to obtain reasonable payment terms and conditions when you are unable to immediately pay your payroll tax debt.

Whether you are already under investigation or would like advice regarding compliance with these payroll tax requirements, we’re available to assist.

Muiños & Morales


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