Withholding But Never Letting Go Gets Businessman Sentenced to 15 Months

All too often business owners find all that money they have withheld from employees’ paychecks much too tempting. Instead of paying it to the IRS, as they are obligated, they keep it, and use it for other things, like the electric bill, or a supplier whose supplies are necessary for the business to stay in business. Other people’s money used for things for which it was not supposed to be used. This can lead to problems. For example:

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Jobs Agency Owner Gets Temp Assignment (Some Call it a ‘Sentence’) to Federal Prison for Unpaid Employment Tax

A San Antonio, Texas, woman was sentenced to 41 months in federal prison and ordered to pay $1.5 million in restitution to the IRS for her role in a fraudulent tax scheme.

In addition to the prison term, United States District Judge Fred Biery ordered that Terrell Diamond be placed under supervised release for a period of three years after completing her prison term.

According to court records, Diamond, along with her now-ex-husband and co-defendant, William Diamond, conspired to defraud the IRS in the assessment and collection of more than $1.5 million in employment taxes due and owing from November 1996 to June 2003.

The employment taxes owed pertained to temporary employment agencies owned and operated by the Diamonds, including Ameriforce and Primo Labor.

Both Diamonds pleaded guilty to the same charge: one count of conspiracy to defraud the IRS.

Dentist’s Pyramid of Unpaid Payroll Taxes and Unfiled Returns Bring Indictment

If dentist Arlan R. Turley treated his teeth the way the Government alleges he’s treated his tax-filing obligations, he’d have cavities and one heck of a case of bloody, bad gums.

This 60-year-old Arizona man was indicted on two counts of willful failure to file a tax return and 20 counts of willful failure to pay over taxes. Turley operated the East Valley Dental Service in Mesa, Ariz.

The indictment alleges that the charges for failure to file are the result of Turley’s non-filing of his 2002 and 2003 income tax returns. In addition, Turley has not filed an individual tax return for a whole decade: 1997 to 2007.

The charges for failure to pay over taxes arise from Turley allegedly not turning over his employees’ payroll taxes to the government, again and again. (See http://lifelawandtaxes.com/not-just-for-bernie-madoff-or-king-tut-business-owners-build-devastating-pyramids-of-withholding-tax-debt-deducted-from-paychecks-but-not-sent-to-irs/ .)

If convicted, Turley faces up to five years in prison and a fine of up to $250,000.

Not Just for Bernie Madoff or King Tut, Business Owners Build Devastating Pyramids of Withholding Tax Debt Deducted From Paychecks But Not Sent to IRS

What do they call it when a business owner withholds payroll taxes from his or her employees’ paychecks, spends that money on other expenses, doesn’t send the withholding tax payment to the IRS, then, does the same thing again, and then again, and then again?

The “again and again” part is called “pyramiding”: the employer is pyramiding its failure to pay one payment period after another, growing the company’s debt to the government astronomically.

Another way to describe it is digging the hole deeper, and deeper. (Recall Bill Clinton’s sensible advice: If you’re in a hole, first thing: stop digging.)

The act of failing to pay to the IRS (actually the U.S. Treasury) is a way to live especially dangerously for business owners, managers, and decision makers at the company. James Bond thinks he’s living dangerously? Feh!

The reason it is so dangerous is: The IRS has the power to hold the owners, managers, and decision-makers at the company personally responsible for the unpaid withholding tax with little more than the stroke of a pen. (This is called the “Trust Fund Recovery Penalty.”)

With this extraordinary power, the IRS can “pierce the corporate veil” with an ease unknown to ordinary creditors. Once it does, this liability is NOT deductible and it is NOT dischargable in bankruptcy. So there is a triple-whammy which can be devastating, and “pyramiding” the debt multiplies the problem.

This triple-whammy is then magnified further by the state tax dept, if the business is in a state which has an income tax; States have similarly huge, extraordinary powers and often the state is even tougher than the IRS.