For years, the IRS responded to delinquent business payroll tax payments by assessing civil penalties and
interest. Due to recent changes in tax legislation, business owners who inappropriately use their
employees’ payroll taxes may be committing a tax crime. The IRS is not only looking for business owners
who use employee payroll taxes as their own funds, but also those owners who use payroll taxes to keep
their businesses afloat when there is inadequate cash flow. Both of these situations can leave business
owners in a state of shock once the IRS finds out.
Previously, the IRS would perform a trust fund investigation to seek repayment from the business by
means of civil enforcement. Now, in addition to this, the IRS along with the Department of Justice (DOJ)
may also seek an injunction to ensure taxes are deposited and filed on time AND stop the operations of
offending businesses. Disregard that injunction and you may find yourself in jail.
If the business owner deliberately misused employees’ payroll taxes, the IRS and DOJ will pursue
business owners not only civilly, but criminally. Owners who have spent these moneys for their own
personal gain will face double the penalty for the unpaid income taxes. The IRS has begun tracing funds
while performing payroll tax audits. This may lead to criminal penalties under Internal Revenue Code
sections 7201 and 7202, If an IRS audit discovers that the business owner did not include the income on
their personal tax return, they may be forced to pay a 75% civil fraud penalty. In cases of repeat
offenders, business owners may now face criminal prosecution.
It is imperative for business owners to meet with their trusted tax attorney before the IRS begins the
audit process. At Ourednik Law Offices, our tax professionals can advise and protect business owners’
assets by reviewing payroll tax situations. Our goal is to ensure personal security, peace of mind, and
the continuation of your business operation. Bringing your business into compliance is essential (unless
you look good in stripes or a bright orange jumpsuit.)