5 Year Prison Terms Over Payroll Taxes Warn Employers About IRS

The IRS can be tough on collecting income taxes, and even tougher where payroll taxes are concerned. The money is withheld from employee wages, and is supposed to be paid over to the IRS. If the IRS doesn’t get it, the losses can mount quickly. Payroll taxes are withheld from wages and are to be promptly paid to the government. This is trust fund money that belongs to the government, and no matter how good a reason the employer has for using the money for something else, the IRS is strict. The IRS can target the owners of the business, plus check signers and other responsible persons who had a role–or could have had a role–in the failures to pay. Sometimes, the IRS even goes after third parties, even criminally. If convicted, the sentence can often be five years in prison.

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For example, a former bank vice president has pleaded guilty to conspiring to defraud the United States. According to documents filed with the court, Douglas Corriher, 68, was Vice President of a South Carolina-based bank. From 2009 through 2010, Corriher extended several factoring loans, through nominee entities, to a bank customer who operated staffing companies in North Carolina. Through the use of nominees, Corriher was able to circumvent federal regulations limiting the amount of money that can be loaned to a single entity.

The staffing company promised its clients that it would pay the payroll taxes for thousands of low-wage temporary workers it supplied to its clients. The company issued IRS Forms W-2, and filed employment tax returns showing that the funds had been withheld from the wages of the workers. In fact, though, the payroll taxes were not paid over to the IRS. Corriher was aware that the company owed more than $1 million in payroll taxes. Even so, Corriher continued to make advances on the loans. He knew the fund of unpaid payroll taxes would enable the staffing company to repay the loan, thus allowing the bank to continue collecting high rates of interest on the loan advances, plus earning lucrative fees.

Corriher’s sentencing hearing is scheduled for Oct. 6. He faces a statutory maximum sentence of five years in prison, as well as a period of supervised release, restitution and monetary penalties. Most payroll tax cases don’t end up as criminal ones, but many have at least the potential for criminal liability. Of course, even civil liability is nothing to trifle with. The IRS tends to push hard, especially when payroll tax failures reflect a pattern. The IRS can close a business, and sometimes even take court action to make it doubly clear that the IRS does not want a repeat performance.

Any failure to pay—even late payment—is serious, regardless of how or why the employer or its principals use the tax money for something else. Using the money to pay suppliers and keep the business open isn’t a good reason in the IRS view. Payroll services are one common answer, so the employer doesn’t have discretion to use the money to pay vendors or for anything else. But what if the payroll service takes the money? That horrific possibility features prominently in a report from the Treasury Inspector General.

So be careful who you hire too. When a tax shortfall occurs, the IRS will usually make personal assessments against all responsible persons who have ownership in or signature authority over the company and its payables. The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person” under Section 6672(a). You can be liable even if have no knowledge the IRS is not being paid.

If you are a responsible person the IRS can pursue you personally for payroll taxes if the company fails to pay. The 100% penalty equals the taxes not collected. The penalty can be assessed against multiple responsible persons, allowing IRS to pursue them all to see who coughs up the money first. “Responsible” means officers, directors, and anyone who makes decisions about who to pay or has check signing authority.

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IRS Releases Mayweather Tax Lien, Here’s How IRS Can Release Yours

A new report says that Floyd Mayweather’s $3.3 Mill tax lien has been released by the IRS, even though he appears to still owe the IRS a whopping $29 million. If true, it might make you wonder why the IRS often pushes so relentlessly to collect, but seems to ease off in some cases. In this case, the answer appears to be that Mayweather paid the $3.3M tax debt in full, so the IRS didn’t have a choice. The Money boxer still owes the IRS more than $20 million, and he is still suing the IRS to await his Conor McGregor Fight payday for more payments. Mayweather’s finances aren’t public, but many news sources have tallied the recent $22.2M tax lien, plus his still unpaid 2010 IRS debt of $7.2M. The total sounds painfully close to $30M.

LONDON, ENGLAND – JULY 14: Floyd Mayweather Jr. during the Floyd Mayweather Jr. v  Conor McGregor World Press Tour at SSE Arena on July 14, 2017 in London, England. (Photo by Matthew Lewis/Getty Images)

Mayweather may have higher priorities than paying his taxes. After Conor McGregor called him out to pay his taxes, Mayweather lamented that he already had paid the IRS $26 million:

While everyone is counting my money and assuming the worst, these are the facts… Uncle Sam, received $26,000,000.00 from me in 2015! What else could they possibly want? I’m sure I would have been notified much sooner if there were any real discrepancies right? Bottom line, everybody just wants to be a part of the ‘Money May’ show, including the IRS! That’s fine, you can crunch numbers all day but in the end, my empire is rock solid and intact! Now Calculate That!”

Floyd Mayweather Jr. is worth plenty, of course, but high value assets do not always translate to cash to pay the IRS. Even if you have the cash, writing a check can be, well, tough. Mayweather’s cash-flow at least will change with his upcoming August 26 next fight with MMA’s Conor McGregor. He should be rolling in cash soon. As to tax liens, they are just the IRS’s way of making sure that the IRS gets paid no matter what. Still, they are public and can be embarrassing. IRS tax liens can spoil your credit, prevent real estate closings, and damage your reputation. The IRS files a notice of lien so creditors know. IRS tax liens cover all property, even if acquired after the lien filing.

How do you get a lien removed? You guessed it, you usually have to pay up. Then, the IRS is supposed to release the lien so you can get back to normal. Under Section 6321 of the tax code, when you fail to pay a tax liability after notice and demand, a lien attaches to all your property and rights to property. The IRS can seize and sell property subject to a federal tax lien. So, filing a lien is second nature to the IRS, but it doesn’t necessarily mean they will try to seize and sell anything. Unfortunately, though, tax liens are sometimes not promptly removed, even after you have paid off the IRS in full. One government report says that some IRS lien notices are mishandled, with notices going awry, appeal rights not being explained, and similar gaffes. The report says in most cases, the IRS mailed out the lien notices explaining the taxpayer’s appeal rights.

The IRS can file a Notice of Federal Tax Lien only after the IRS assesses the liability; sends a Notice and Demand for Payment; and you fail to pay in full within 10 days. The courts use it to establish priority in bankruptcy proceedings and real estate sales. IRS liens last 10 years, and usually release automatically if IRS has not refiled them. However, you’re better off to get them removed immediately. Getting the IRS to release a lien usually involves: (1) paying the tax, interest and penalties; or (2) posting a bond guaranteeing payment. Even then, the IRS may take 30 days. State or local government charges to file and release the lien are added to the amount you owe.

The IRS explains how to request a release of federal tax lien. Note that tax liens and seizures are not the same. The lien just makes sure the IRS eventually gets paid. A seizure involves forced collection so the IRS can sell property and get paid. That’s usually a bad thing, but if you want to travel, paying the IRS might not be such a bad idea. After all, now the IRS can revoke passports for tax debts, too. The State Department actually does the revoking, if IRS certifies that you have a seriously delinquent tax debt over $50,000. That could mean no new passport and no renewal. It could even mean the State Department will rescind existing passports. The State Department will act when the IRS tells them, and the list of affected taxpayers will be compiled by the IRS. The IRS will use a threshold of $50,000 of unpaid federal taxes. But this $50,000 figure includes penalties and interest. And interest and penalties can add up fast. The rules are not limited to criminal tax cases or where the government thinks you are fleeing a tax debt.

If Mayweather felt he had to file in Tax Court, perhaps it was to make sure that the IRS did not do something rash, like push hard to collect. The IRS does like to get paid. In that sense, maybe the IRS and Mayweather have something in common after all.

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DMX And Floyd Mayweather Tax Troubles Show How Not To Deal With IRS

Tax problems—whether civil or criminal—often hold lessons for everyone else. Sure, you might want to emulate a Warren Buffett, or even a Donald Trump, if you think they made a tax savvy move you can copy. You are less likely to want to emulate Wesley Snipes, who followed a kind of tax protester strategy. It ended up interrupting his film career badly, sending him to prison for three years, and costing him millions. Even after that, Snipes fought with the IRS over tax bills he claimed were abusive and false. Some of the lessons one can learn from Snipes–such as getting independent advice and not handling all of your affairs over to others–still ring true.

LONDON, ENGLAND – JULY 14: Floyd Mayweather Jr. during the Floyd Mayweather Jr. v  Conor McGregor World Press Tour at SSE Arena on July 14, 2017 in London, England. (Photo by Matthew Lewis/Getty Images)

There are also lessons in the recent tax problems that are still unfolding for DMX (also known as Earl Simmons), and even boxing great Floyd Mayweather, Jr. Plainly, DMX is in much hotter water. Accused of 14 separate criminal counts, the charges against DMX, if proven, could land him in prison for up to 44 years. The charges include corruptly endeavoring to obstruct and impede the due administration of Internal Revenue Laws, evasion of payment of income taxes, evasion of assessment of income tax liability, and failure to file a U.S. individual income tax return.

DMX has pleaded not guilty, but these cases are tough to win with the kind of evidence prosecutors are likely to have. In the past, DMX served time in jail for drug possession, felony theft, dog fighting, reckless driving and failing to pay child support. But these new and serious charges go back to tax scuffles he had with the IRS many years back. They involve $1.7 million in alleged tax liabilities that I’ll bet DMX now wishes he had paid. The indictment alleges that Simmons’ earnings from musical recordings and performances from 2002 through 2005 meant that he owed federal income tax liabilities of approximately $1.7 million. Those early liabilities went unpaid.

Then, in 2005, the IRS began efforts to collect on these unpaid tax liabilities. That’s when Simmons’ alleged conduct went from bad to worse. Plus, from 2010 through 2015, Simmons earned over $2.3 million. Even so, prosecutors say he did not file tax returns for those years. Instead, prosecutors say he orchestrated a scheme to evade payment of his outstanding tax liabilities. He maintained a cash lifestyle, and avoided using personal bank accounts. He even used the bank accounts of nominees, including business managers to pay personal expenses. Simmons would get his manages to accept the royalties, and then give Simmons cash, the feds allege. Any kind of duplicity is likely to hurt his defense badly.

As for Mayweather, his case may be more cash mismanagement than anything else. His tax case is civil, and appears to only be about taxes that he admits he owes. Well, his public statements say he gave the IRS $26M, but seems to ask how the IRS could possibly want more! Yet the timing suggest that these are not tax bills after an audit. Mayweather presumably filed his 2015 tax return in 2016, but only sent the IRS part of the money. It is easier to understand a surprise and a shortfall where the IRS says you owe additional taxes. Sure, most of Mayweather’s income is probably via contract, without tax withholding, and maybe he was somehow surprised at the size of his 2015 tax bill.

However, you would think that his team of advisers and professionals would make sure that the amounts anticipated for that’s year’s taxes would be reserved for that purpose. If you are investing, you arguably shouldn’t tie up money you must pay the IRS soon. The math would not seem to be that difficult. Athletes and entertainers often have people that do these sorts of things for them, but here, something must have been missed. Speaking of much bigger errors, the serious DMX indictment, U.S. v. Earl Simmons Indictment, is worth reading for what not to do.

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Rapper DMX Charged With Tax Evasion, Could Face 44 Years

DMX, the 46-year old recording artist, performer, and actor whose real name is Earl Simmons, has been charged with 14 counts of federal income tax evasion involving $1.7 million in alleged tax liabilities. He has surrendered to federal authorities. As is typical in cases of high profile defendants, prosecutors make much of his financial success and public acclaim. The indictment, U.S. v. Earl Simmons Indictment, is worth reading in its entirety. 

FILE – In this Sept. 23, 2009 photo, DMX arrives at the 2009 VH1 Hip Hop Honors at the Brooklyn Academy of Music in New York. (AP Photo/Peter Kramer, file)

According to Acting U.S. Attorney Joon H. Kim:

For years, Earl Simmons, the recording artist and performer known as DMX, made millions from his chart-topping songs, concert performances and television shows.  But while raking in millions from his songs, including his 2003 hit ‘X Gon’ Give it to Ya,’ DMX didn’t give any of it to the IRS.  Far from it, DMX allegedly went out of his way to evade taxes, including by avoiding personal bank accounts, setting up accounts in other’s names and paying personal expenses largely in cash.  He even allegedly refused to tape the television show ‘Celebrity Couples Therapy’ until a properly issued check he was issued was reissued without withholding any taxes.  Celebrity rapper or not, all Americans must pay their taxes, and together with our partners at the IRS, we will pursue those who deliberately and criminally evade this basic obligation of citizenship.”

Beginning in 1997, Simmons released a series of hip-hop albums that sold in the millions. Many of his albums went platinum and occupied top positions on musical charts. Simmons performed at venues across the United States and around the world, and has acted in motion pictures. But now he is charged in 14 counts: one count of corruptly endeavoring to obstruct and impede the due administration of Internal Revenue Laws, one count of evasion of payment of income taxes, six counts of evasion of assessment of income tax liability, and six counts of failure to file a U.S. individual income tax return.

These are only charges, and Simmons is presumed innocent. But make no mistake, these are staggering charges, with vast prison time possible if Simmons is convicted of all the charges. Count One carries a maximum sentence of three years. Counts Two through Eight carry a maximum sentence of five years—each. Counts Nine through Fourteen carry a maximum sentence of one year–each. If you assume the worst–that the feds succeed in convicting him on all counts–the potential prison time could be up to 44 years. That probably isn’t likely, but it is staggering possibility.

The indictment alleges that Simmons’ earnings from musical recordings and performances from 2002 through 2005 meant that he owed federal income tax liabilities of approximately $1.7 million. Those early liabilities went unpaid. Then, in 2005, the IRS began efforts to collect on these unpaid tax liabilities. That’s when Simmons’ alleged conduct went from bad to worse. Plus, from 2010 through 2015, Simmons earned over $2.3 million. Even so, prosecutors say he did not file tax returns for those years.

Instead, he orchestrated a scheme to evade payment of his outstanding tax liabilities. He maintained a cash lifestyle, and avoided using personal bank accounts. He even used the bank accounts of nominees, including business managers to pay personal expenses. He received hundreds of thousands of dollars of royalty income from his music recordings, but managed to skate on taxes, prosecutors claim. Simmons would get his manages to accept the royalties, and then give Simmons cash. Simmons was also on the “Celebrity Couples Therapy” TV show in 2011 and 2012, for which he was paid $125,000.

Prosecutors cite that TV show as a telling example. When taxes were withheld from Simmons’ check for the first installment of that fee by the producer, Simmons refused to tape the remainder of the show until the check was reissued without withholding taxes. Prosecutors claim that he took other steps to conceal his income too. He allegedly filed a false affidavit in U.S. Bankruptcy Court that listed his income as “unknown” for 2011 and 2012. Then, he said he made $10,000 for 2013. In reality, though, say prosecutors, Simmons received hundreds of thousands of dollars of income in each of those years. None of these charges has been proven, but it seems likely that DMX has some serious explaining to do.

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12 Year Prison Term For NY Restaurant Owner Tax And Ponzi Scheme

When tax evasion and other financial crimes occur together, prison terms can be long. A 46 year old Watertown, New York food and restaurant entrepreneur and franchisor named Christopher Swartz has been sentenced to serve 150 months in prison for committing tax evasion and investment fraud. He had pleaded guilty to tax evasion and wire fraud last year. According to documents filed with the court, Swartz engaged in a promissory note scheme to defraud lenders and investors out of more than $19 million. But that wasn’t all. In addition to bilking investors, he ran a scheme to evade more than $4 million in taxes, and to obstruct the IRS.

According to documents filed with the court, between 2005 and 2015, Swartz defrauded investors through bogus promissory notes and fraudulent offers of ownership in his companies. He induced investors by promising company growth and high interest rates. Despite these promises, Swartz stole investor funds and money from the businesses, and he spent it for his personal benefit. When lenders and investors tried to get their money back, Swartz provided false assurances, and made partial payments, including payments by check that he knew would bounce. He sought to cover up his thefts by falsifying company records. Swartz also concealed his assets and income to avoid seizure and collection by lenders, investors, and judgment creditors seeking to recover their funds.

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Swartz used food and restaurant entities and companies to fraudulently issue promissory notes and stock. The companies he employed included: Jreck Subs, North Country Hospitality, Ultimate Franchise Systems, Caffino Live Roast, Madeline Ventures, Grace Ventures and Obees. In addition to his promissory note scheme, Swartz sold worthless shell company stock to approximately 70 United Kingdom residents, stealing the funds and defrauding them of approximately $1.1 million.

Swartz also committed tax evasion for a decade. Between 2005 and 2015, Swartz filed false personal tax returns that underreported his income, and that did not file corporate returns or pay corporate taxes. Swartz diverted money from business accounts and concealed the diversions in the company records by making fraudulent accounting entries. He made extensive use of cash too, so the funds could not be traced. He also used multiple entities and nominees to conceal his ownership of various assets.

Swartz also falsified partnership tax returns and attempted to impede the IRS’s ability to collect employment taxes. Court documents allege, and Swartz did not deny, that he owned and operated Jreck Subs as a franchisor since 2002 or perhaps earlier. However, he did this through multiple layers of nominees and entities. Jreck is a popular submarine sandwich chain, and is one of the largest New York State-based franchises. It has approximately 45 stores in central and upstate New York.

Swartz is in custody and begins serving his sentence immediately. The court ordered Swartz to serve three years of supervised release, and to pay $21,041,249.43 in restitution to his investment fraud victims. He was also ordered to pay $4,619,340.75 in restitution to the IRS. The court ordered a forfeiture money judgement totaling $12,360,400. As part of his plea agreement, Swartz agreed not to contest ownership of the franchise or forfeiture of this asset. Jreck Subs is currently the subject of a restraining order, as the government evaluates the potential forfeiture of the business and a sale to new owners, with proceeds serving as a potential source of funds to compensate victims.

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Floyd Mayweather Denies Tax Problems, Paid IRS $26 Million Already

Taxes aren’t exactly like an MMA match, but Floyd Mayweather and Conor McGregor might feel otherwise. There’s more tax sparring preceding their August 26 bout. After McGregor said pay your taxes, Floyd Mayweather now says he already paid $26 million to IRS for 2015. He suggests there’s no tax problem, and that he doesn’t get all the hubbub over this:

While everyone is counting my money and assuming the worst, these are the facts… Uncle Sam, received $26,000,000.00 from me in 2015! What else could they possibly want? I’m sure I would have been notified much sooner if there were any real discrepancies right? Bottom line, everybody just wants to be a part of the ‘Money May’ show, including the IRS! That’s fine, you can crunch numbers all day but in the end, my empire is rock solid and intact! Now Calculate That!”

LOS ANGELES, CA – JULY 11: View of stage for the Floyd Mayweather Jr. v Conor McGregor World Press Tour at Staples Center on July 11, 2017 in Los Angeles, California. (Photo by Harry How/Getty Images)

Sounding almost presidential, Mayweather even said, “Believe half of what you see and none of what you hear, especially when it comes to media in this country.” Maybe, but the media does like the story that Mayweather still owes the IRS his 2015 taxes. After Mayweather failed to convince the IRS to let him pay over time, he even filed suit against the IRS, asking for time to pay. Of course, paying $26M in taxes is a lot of money. But that doesn’t mean the $26M is all that he owes. In fact, it might not be even close. We don’t know.

However, his earnings were large enough just from the Mayweather v. Pacquiao fight that $26M is surely only a piece—maybe even a small piece—of the total due. Just how big his 2015 tax bill was—and how mcuh remains—has caused much speculation. In 2015 alone, Mayweather reportedly earned $220-230 million for defeating Manny Pacquiao. Once the McGregor fight takes place, Mayweather could have 2017 income from the fight in an amount as much as $400 million. He’ll have to address those back 2015 taxes too, plus penalties and interest.

Does the IRS like to wait? No, but sometimes it has to. It is common to delay payment, and to deal with IRS over time.  However, first let’s consider self-assessed taxes (where you file your tax return, report what you owe, but just cannot pay it). That is quite different from a notice of additional taxes due after an audit. Mayweather’s case appears to be the former, where he may not have planned to well. The ‘cannot pay’ issue is more prevalent (and easier to understand) in the latter situation, where the IRS says you owe additional taxes. Many taxpayers who are paid wages might think about withholding.

Didn’t Mayweather’s employer take out taxes? Not likely. Most of his income is probably via contract without withholding. However, as a matter of simple planning, you might think that he would put aside the portion of that pay anticipated to go to taxes. If you are investing, you arguably wouldn’t tie up money that you had to pay the IRS soon. The math would not seem to be that difficult. However, it is not clear what Mayweather—or rather his managers and financial advisers—actually did. Athletes and entertainers often have people that do these sorts of things for them. Perhaps something went awry.

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Texan Gets 3 Years Prison For Payroll Taxes, Why You Should Avoid Violations

Richard Floyd Tatum Jr., 57, a Houston, Texas business owner, was sentenced to 36 months in prison for failing to pay over employment taxes. That may sound like a relatively simple tax problem, but it is anything but. Some months ago Tatum pleaded guilty to one count of failing to pay over employment taxes. The dollar amount of the violation was staggering. His company, Associated Marine & Industrial Staffing Inc. (AMI), was an industrial staffing company. It provided temporary labor to businesses in Texas and in other states. Through his company, Tatum employed approximately 1,000 people assigned to work on-site at client locations.

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As with most any employer, paying wages involves withholding taxes. Tatum was responsible for collecting, accounting for and paying over to the IRS the payroll taxes withheld from AMI’s employees’ wages. Tatum exercised significant control over AMI’s finances, including entering into contracts, signing checks, making payroll, and deciding which creditors to pay. Tatum also signed and filed the company’s IRS employment tax returns. But not everything went smoothly.

From March 2008 through December 2009, Tatum filed false and delinquent employment tax returns for the company, which did not report AMI’s external employees. In May 2013 Tatum tried a partial fix, filing delinquent tax returns for the quarters ending in March 2010 through December 2012. These returns reported AMI’s external employees, but he made no payments of the taxes owed. And the taxes owed were substantial. Tatum withheld approximately $12 million in payroll taxes from his employees from March 2008 through December 2012, but did not pay over any of this money to the IRS.  Tatum also failed to pay $6 million of AMI’s required share of social security and Medicare taxes during the same quarters.

Instead, he used the money for his personal benefit, including making payments on his ranch and traveling to Las Vegas, Hawaii and France. Tatum admitted that he caused a tax loss of more than $18 million. In addition to the three-year term of imprisonment, Tatum was order to serve three years of supervised release, and to pay restitution to the IRS in the amount of $18,298,604.

The case is yet another reminder that while income taxes are important, payroll taxes can be even more so. Every employer must withhold taxes from employee paychecks, sending the money to the IRS. The IRS calls this trust fund money, so if an employer fails to hand it over to the IRS, it is like theft. The IRS tends to push hard in such situations, especially when payroll tax failures reflect a pattern. The IRS can close a business, and sometimes even take court action to make it doubly clear that the IRS does not want a repeat performance.

Many businesses experience cash-flow squeezes from time to time. If you are in business, it can be tempting to figure that you have to keep the rent paid and supplies ordered. Besides, you might think that the IRS won’t miss the payroll tax money if you just divert it temporarily. But, no matter how good the reason, the practice of failing to promptly pay over employment taxes is downright dangerous. It is one reason that in cases where the IRS catches the problem early, the IRS will encourage use of a payroll service. If the payroll service automatically takes out and remits all the payroll taxes, the business won’t have the discretion to divert the money, even briefly.

The IRS does understand that companies get behind. And quick action and transparency with the IRS are key. That includes communicating with the IRS, and starting to make voluntary progress payments even as you work on a more long-term solution. Many of the employment tax cases that become criminal ones may involve flagrant behavior and even attempted cover-ups. You can have big problems with joint income tax returns too, as in the case of one couple with joint tax returns, who got three years in prison — each. But make no mistake: employment tax violations can especially be playing with fire.

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