Cision PR Newswire

IRVINE, Calif., Feb. 13, 2025 /PRNewswire/ -- According to a Department of Justice press release, a federal grand jury in Houston has indicted a Texas man for allegedly failing to remit payroll taxes that his company withheld from employees' wages. This case highlights the serious legal consequences that business owners, company executives and accounting personnel in charge of payroll can face when they fail to meet their federal employment tax obligations. If you, or your company, are behind on payroll taxes, filed fraudulent payroll returns, paid employees in cash without issuing W2's or 1099's or have not filed required employment tax returns, it is imperative to meet with an experienced employment tax attorney before the IRS takes potentially criminal tax enforcement action.

Defendant Allegedly Withheld Taxes but Failed to Remit Them to the IRS

Court records reveal that Joseth Limon, of Harris County, Texas, owned and operated Platinum Employment Group Inc., a business that sourced laborers for various businesses in the Houston area. From 2016 through 2018, Platinum allegedly paid its employees over $3.5 million in wages and withheld approximately $450,000 in payroll taxes from their paychecks.

Under federal law, employers are required to withhold federal income tax, Social Security tax, and Medicare tax from their employees' wages and then remit those funds to the IRS. These withheld taxes are known as trust fund taxes because the employer holds them in trust on behalf of the federal and often state governments. According to the federal indictment, while the defendant's company withheld these amounts from employee paychecks, he allegedly failed to turn them over to the IRS as required by law. Furthermore, prosecutors allege that Limon did not file employment tax returns during that period.

The Legal Consequences of Failing to Pay Employment Taxes

If convicted, Limon faces up to five years in federal prison, along with a fine of up to $250,000. In addition to criminal tax penalties, the IRS has the authority to assess civil penalties. One of the most severe penalties available is the Trust Fund Recovery Penalty, which allows the IRS to hold business owners and other responsible parties personally liable for unpaid payroll taxes.

The Trust Fund Recovery Penalty applies when an individual is responsible for collecting, accounting for, and paying employment taxes, and that individual willfully fails to remit those taxes to the IRS.

In many cases, business owners believe that payroll tax obligations can be postponed when and if cash flow issues arise. Others simply think that those funds withheld and held in trust are more akin to a loan from their business. But to the contrary, borrowing from payroll tax funds to cover other business or personal expenses is considered willful tax evasion under federal law. The IRS aggressively pursues cases where businesses fail to pay over withheld taxes, often leading to criminal charges, substantial financial penalties, and civil enforcement actions.

Understanding Employer Obligations Under Federal Law

Under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), employers have strict responsibilities when it comes to payroll taxes. The law requires employers to:

1. Withhold payroll taxes from employee wages - Employers must deduct federal income tax, Social Security tax, and Medicare tax from each paycheck.
   
   
2. Remit payroll taxes to the IRS - Employers must deposit withheld taxes, along with their own share of Social Security and Medicare taxes, according to a scheduled deadline.
   
   
3. File quarterly and annual payroll tax returns - Businesses must submit Form 941 (Employer's Quarterly Federal Tax Return) to report payroll taxes and Form 940 (Annual FUTA Tax Return) for unemployment taxes.
   
   
4. Keep accurate payroll records - Employers are required to maintain detailed records of wages paid, taxes withheld, and tax deposits.

Failure to comply with these requirements can lead to civil audits, financial penalties, and criminal employment tax charges, as seen in the defendant's case. When businesses fail to pay their payroll taxes, the IRS has the authority to take aggressive collection actions, including bank levies, asset seizures, and federal tax liens.

IRS Enforcement and Prosecution of Payroll Tax Violations

Cases involving unpaid employment taxes have been a top enforcement priority for the IRS in recent years. The agency has increased the use of criminal tax investigations to refer business owners for prosecution who fail to pay payroll taxes, particularly when the amounts involved are significant.

IRS Criminal Investigation (IRS-CI) typically investigates (and could refer the case for prosecution to the DOJ) these cases when:

• The unpaid payroll tax liability is substantial.
• The employer engaged in deliberate efforts to conceal assets or mislead IRS agents.
• There is evidence that the employer used withheld payroll taxes for personal expenses or to make payments to other business creditors. The IRS would rather you go out of business or claim bankruptcy than failing to remit payroll taxes.
• In Limon's case, the government alleges that he failed to pay over $450,000 in withheld payroll taxes while also failing to file required employment tax returns. These factors increase the likelihood of severe penalties, as the IRS views this type of conduct as intentional tax evasion.

What Business Owners Should Do If They Have Unpaid Payroll Taxes

There are various strategies that a taxpayer can employ if they have fallen behind on their employment tax responsibilities. From installment agreements to voluntary disclosures, to offers-in-compromise, there are a host of options available to taxpayers and their attorneys. But the one option that should be avoided is doing nothing. Not only will it cause you to lose sleep, but it will also not help your situation once the IRS discovers your noncompliance.

It is important to remember that waiting until the IRS contacts you is often too late. Business owners who take proactive steps to resolve payroll tax issues will generally have better options than those who wait for the IRS to initiate potentially criminal tax enforcement actions.

The indictment of the defendant above underscores the serious legal consequences of failing to pay over withheld payroll taxes. While his case is still playing out in the courts, if convicted, he could face significant prison time and financial penalties. This case serves as an important reminder that payroll taxes are the single-largest source of tax revenue for the government. As such, the intensity of government investigations and prosecutions in this space is amplified when compared to other potentially criminal tax matters.

For business owners facing payroll tax issues, seeking guidance from an experienced employment tax attorney is essential. Whether dealing with IRS audits related to employment/payroll taxes, collection actions, or criminal investigations, taking proactive steps to get right with the government can make the difference between resolving the issue civilly or facing severe penalties.

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, dave@taxesqcpa.net

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SOURCE Tax Law Offices of David W. Klasing, PC