Tax Brake with Robert G. Nath, Esq.

Background: IRS enforcement of criminal laws regarding employment taxes has been notoriously lax. Even enforcement of income tax evasion and nonfiling has suffered, at least until recently.

Now, the IRS is going after abusers of the payroll tax system. This can happen in many ways. For example, the employer who pays in case, “under the table” with intent to defraud can be discovered and prosecuted. The employer who classifies workers as “independent contractors” when they are not, with intent to defraud, can be prosecuted. The employer who fails to file payroll tax returns, or fails to pay with withholding, can and may be in trouble.

True enough, the IRS has civil enforcement powers in each of these areas. The agency makes about 50,000 “trust fund” assessments each year against the owners and officers of failed businesses. But even there, collections are down; enforcement is spotty. Since everyone knows this, there is even greater temptation to use those withheld funds for a failing business.

The IRS knows that if it gets tough, every dollar of enforcement will yield many times that in compliance. So its initiative to enforce the criminal provisions of the tax laws in the case of employment taxes has received press attention. Watch out if you are at risk.

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