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Employment tax fraud: many cases around the country

We've been paying close attention in this blog to employment tax issues in Texas. As we discussed six weeks ago, in our May 8 post, the IRS has been seeking to expand a program that offers incentives for employers to voluntarily reclassify workers who may not have been previously classified as employees. This program is called the Voluntary Classification Settlement Program.

Misclassification is only one issue, however, that can be involved with employment taxes. Another is when there is no dispute that the workers are employees, but the business owner fails to pay federal employment taxes for them.

Are there times when the IRS pursues criminal investigations for possible employment tax fraud in these cases?

The answer is yes. In one recent case, the former owner of a toy company was sentenced to a year in prison for not paying federal employment taxes. The man admitted that that for over two years, he withheld employment taxes from his employees, but did not pay over the money to the government.

The man kept receiving notices from the government that the taxes were due. But he failed to pay them. And the taxes kept adding up. They finally reached more than $850,000 in tax loss to the government.

Around the country, there are numerous other cases like this. In another case, the owner of a swimming pool company pleaded guilty to deducting and withholding more than $290,000 in employment taxes from his employees' wages. The man was sentenced to a prison term of 18 months for failing to pay the money over to the IRS.

Source: IRS.gov, "Employment Tax Fraud - Criminal Investigation (CI)"

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