IRS Focused on Criminal Prosecution of Employment Tax Cases

The IRS is increasing its focus on prosecuting business owners for delinquent federal employment tax liabilities.  Specifically, in March 2017, the Treasury Inspector General for Tax Administration (TIGTA) published a report detailing how employment tax crimes have become a major problem for the IRS.  In this report, the TIGTA noted that as of December 2015, 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes, interest, and penalties.

The IRS views these types of liabilities as a form of unauthorized borrowing from the federal fisc.  Accordingly, the IRS is developing a focused strategy to address the current payroll tax problem by expanding the IRS’s Collection function criteria to refer potential criminal cases to the IRS Criminal Investigation Division to include cases involving more than $1 million or individuals involved in ten (10) or more companies and who fail to remit payroll taxes.  You can read the TIGTA’s report by clicking on the link below.

Treasury Inspector General for Tax Administration Report

Given the heightened scrutiny for these types of tax liabilities, it is very important that businesses and their owners deal with the IRS in a very serious and responsible way.  The risk of a criminal investigation/prosecution is extremely high for those taxpayers with significant employment tax liabilities that do not properly communicate with the IRS and work out mutually agreeable repayment plan.  The tax attorneys with Terrence A. Grady & Associates, Co., LPA have years of experience in representing businesses and their owners in these types of situations.  We can work quickly with you to develop a plan for dealing with these liabilities and work successfully with the IRS.  If you have employment tax liabilities and are looking for legal representation, call us today at 614-849-0376.

Criminalization of Payroll Tax Cases

Oftentimes, and particularly during the recent financial crisis years, businesses fall into financial distress, and business owners decide to temporarily, but illegally, “borrow” funds from the IRS by failing to pay over to the IRS the payroll taxes they withheld from their employees’ wages. The more common scenario is that the business never had enough funds to withhold the taxes in the first instance. In most instances, this “borrowing” is for use of the funds in the business to attempt to keep the business afloat during this financial distress.  While most businesses continue to timely file their quarterly payroll tax returns, these returns accurately reflect little or no deposits/payments being made toward the liability incurred as reflected on those returns. Unfortunately, this “borrowing” tends to continue through several quarters and perhaps into several years, during which time the business is attempting to get out of financial distress.

It seems that once a business begins to illegally “borrow” these payroll taxes from the IRS, it seldom survives. Frankly, if these delinquencies span into several quarters and even years, in almost all cases, this should signal the ultimate and inevitable failure of the business. It is a tragic ending when a business and its owners have struggled through hard times and financial distress and end up losing the business along with being personally saddled with much of the debts of the business through personal guarantees. Adding to the tragedy, the owners are personally liable for the payroll taxes that have accrued as a result of an assessment of the Trust Fund Recovery Penalty. And adding insult to injury, this tragedy reaches another dimension altogether when the IRS decides to criminally prosecute these owners for willfully failing to pay over these taxes.

With regard to criminal prosecution, it seems that the IRS is now commonly referring to criminal investigation/prosecution garden variety type payroll tax debts that were previously solely and appropriately handled through numerous civil sanctions, mechanisms and procedures that exist to handle, punish and resolve delinquent payroll tax liabilities, including imposing personal liability. Code Sec. 7202 criminalizes and imposes punishment and sanctions against business persons for the willful failure to pay over payroll liabilities. This statute criminalizes the failure of “responsible persons” of a business—persons who have the responsibility and duty to collect and pay over to the government the payroll taxes withheld from the company’s employees’ wages—for “willfully” failing to pay over payroll taxes to the IRS.

Read more of Terry’s article by clicking on the link below.

JTPP Criminalization of Payroll taxes article nov 2013



As we move into 2015 (a.k.a. “the second “transitional” year of the implementation of the Foreign Account Tax Compliance Act) it is very important to understand the impact this Act has on your business.  This Act, known as FATCA, was implemented to attempt to curb tax evasion by requiring and encouraging the voluntary reporting of foreign financial assets by U.S. taxpayers, foreign and domestic financial institutions, and foreign governments.  The most startling aspect of this new tax law is its reach to virtually all U.S. businesses making payments overseas.  The penalties for failing to comply with these new provisions under FATCA can be very punitive and substantial.  Accordingly, with this law now in effect, all businesses that have global business operations, maintain offshore accounts/assets, or who make payments to offshore individuals or entities should have a working knowledge of FATCA and its general requirements.  In addition to the impact on U.S. businesses, FATCA also imposes additional disclosure/reporting obligations on individual U.S. taxpayers who maintain foreign bank accounts and other foreign assets (including ownership interests in foreign entities).  Suffice it to say, the reach of the FATCA is vast.


There are three general areas of enforcement and regulation under FATCA.  The first area of compliance imposes an additional filing requirement (i.e., the IRS Form 8938) on taxpayers with specified foreign assets over $50,000.  This new form is in addition to the annual FBAR filing obligation for similar foreign accounts.  Unlike the FBAR reports, this new form and filing obligation requires the disclosure of more than just financial bank accounts.  Specifically, this new form, which is appended to the taxpayer’s annual income tax return, discloses all foreign financial accounts in addition to certain other foreign investment assets.  Like the FBAR, there are substantial penalties that can be imposed against taxpayers who fail to include the Form 8938 with their income tax return.  The failure to report could result in a minimum penalty of $10,000 and a maximum penalty of $50,000 for each reporting failure.  There are also related criminal penalties that can be imposed for willful failures to file this disclosure form.


The second area of regulation and compliance under FATCA is designed to encourage worldwide financial transparency by encouraging foreign governments to enter into Intergovernmental Agreements (IGA) with the United States for purposes of sharing of information on U.S. taxpayers with offshore accounts and assets.  In these agreements, foreign governments basically agree to assist the IRS in obtaining information regarding these types of U.S. taxpayers.  Quite surprisingly, the United States’ foreign diplomacy efforts to obtain agreements from many foreign governments have been very fruitful.  To date, the United States successfully obtained agreements from 34 countries under the Model 1 IGA and 5 countries under the Model 2 IGA.


The final area of regulation requires certain foreign entities to register with the IRS and enter into agreements to provide information related to U.S. accountholders or foreign entities that are owned by U.S. taxpayers.  FATCA forces this compliance on foreign entities by requiring this registration in order to avoid a 30% withholding on their U.S. sourced payments.  Specifically, FATCA requires any U.S. business (i.e., withholding agent) making these types of payments to a foreign entity to first ensure that the foreign entity is FATCA compliant.  If FATCA compliance cannot be confirmed, the U.S. withholding agent is required to withhold the 30% from the payment.  If the U.S. withholding agent fails to withhold the required 30% from the payment, it will be responsible for this withholding amount plus potential penalties for failure to withhold.  Accordingly, the burden for ensuring FATCA compliance lies with the payors of the U.S. sourced income.


A U.S. business making this type of payment overseas is required to engage in 30% withholding if the following apply:


  • The payor is a withholding agent obligated to withhold under FATCA;
  • The payment being made is a “withholdable payment”;
  • The payment is being made to a payee who is a foreign financial institution (FFI) and the FFI is not FATCA compliant or compliance cannot be verified.
  • The payment is being made to a payee who is a non-accepted non-financial foreign entity (NFFE) and the NFFE has not properly disclosed its substantial U.S. owners.


Most important of these factors is whether the entity receiving the payment is a FFI or NFFE.  In general, a FFI includes (but is not limited to) depository institutions (i.e., banks), custodial institutions (i.e., mutual funds), investment entities (i.e., hedge funds, private equity funds), and certain types of insurance companies.  In addition to determining whether the payee is a FFI, there are also potential withholding obligations on payments to non-foreign financial entities (NFFE).  If the payment is being made to a FFI, or a non-exempt, 30% withholding will apply UNLESS FATCA compliance can be established.


FATCA compliance can be established through obtaining a withholding certificate from the payee.  This withholding certificate is generally provided on some variation of the IRS Form W-8 (foreign entities and individuals) or the W-9 (for US entities and individuals).  There are complex record retention requirements with respect to these withholding certificates that must be implemented by U.S. businesses.


Many experts, in reviewing the requirements under FATCA, estimate that the overall compliance costs to U.S. businesses will be substantial.  These substantial costs arise due to the enormous reach of FATCA on virtually all U.S. sourced payments made overseas.  In addition, FATCA compliance is even more complicated by the ever changing and evolving IRS notices, the voluminous Treasury Regulations, the dozens of Intergovernmental Agreements, and the newly released IRS forms.  These substantial compliance costs, however, can quickly be out paced by the punitive monetary penalties that can be imposed against taxpayers who fail to properly withhold under FATCA.  As such, most American businesses with global operations will be forced to stomach these compliance costs in order to avoid the IRS’s examination and penalties.


In order to ensure FATCA compliance, U.S. businesses should obtain a FATCA impact assessment that analyzes the regulatory impact of FATCA on business operations.  A comprehensive compliance plan should also be put in place to ensure that the accounts payable departments are properly verifying FATCA compliance before making overseas payments.  Additionally, document collection and retention policies need to be established to ensure that the proper FATCA withholding certificates and verifications are properly maintained.


The tax attorneys with Terrence A. Grady & Associates, Co., LPA can assist you in reviewing your business model and ensuring that the proper procedures in place to ensure FATCA compliance.  Contact attorney Kate Dodson today at 614-849-0376 or


The Key To Abating Punitive International Tax Reporting Penalties

The IRS has a huge arsenal of penalties that can be imposed against unsuspecting taxpayers related to their foreign bank accounts and investments.  In the past, however, these penalties were only assessed (asserted and legally owing) if the IRS found problems with the taxpayer’s compliance during a regular audit examination.  Last year, the IRS made changes to its internal policies to make it much easier to detect problems with international investment filings and to automatically assess very punitive penalties.  With this policy change, there is a significant increase in the international tax penalty assessments being made related to these disclosure forms.  Accordingly, knowing the appeals process and standards for penalty abatement has never been more important… [Continue Reading]

What To Do When You Haven’t Filed Taxes In Years

Failure to timely file tax returns and pay the related tax is a very serious situation that must be handled sensitively with the IRS and the applicable state and local municipalities to which these tax returns were due for filing.  Depending on the taxpayer’s situation, however, there are likely many options available to resolve the filing and payment delinquencies and avoid any criminal prosecution or investigation.  Many taxing authorities have voluntary disclosure programs and amnesties that will allow taxpayers to come in and correct their past mistakes.  Many of these programs also provide incentives to encourage taxpayers to come in and file these delinquent returns.  These incentives include reduced or eliminated delinquency penalties.  Also, depending on the situation, a taxpayer may qualify for a penalty abatement related to the delinquent filing and/or payment.  Due to the criminal undertones related to failure to file tax returns, it is absolutely imperative that taxpayers handle these situations very sensitively.  The most important thing for taxpayers to do when they find themselves in the situation is to contact a tax attorney to assist them in evaluating all of their options.  Set forth below is a brief explanation of some of the voluntary disclosure programs that are available and the standards for penalty abatement… [Continue Reading]

The Unfortunate 500

One Of The Richest People In United States Sentenced For Failing To Disclose Offshore Account

Since the UBS offshore account scandal, and the implementation of the Offshore Compliance Initiative in 2008, the IRS has made no secret of its efforts to enforce the foreign bank account and investment reporting requirements under the Internal Revenue Code. In furtherance of this initiative, the Department of Justice successfully obtained a felony conviction to tax evasion against the 209th richest person in the United States. Specifically, last week the Northern District of Illinois’s District Judge, Charles Kocoras, sentenced Mr. Ty Warner, the maker of Beanie Babies, to a two year term of probation, 500 hours of community service, and $100,000 fine (United States District Court Northern District of Illinois Case No. 13 CR 731) for his failure to report earnings from his undisclosed Swiss offshore bank accounts. This sentence came as a result of Mr. Warner’s guilty plea to one count of tax evasion (26 U.S.C. §7201) related to his failure to properly disclose the earnings from his offshore Swiss UBS AG and Zuercher Kantonalbank bank accounts. In addition to the criminal sentence, Mr. Warner will also be required to pay millions of dollars in taxes and penalties related to his foreign bank accounts… [Continue Reading]