IRS is Cracking Down on Payroll Violators

We want to keep you informed of the latest changes that are taking place in the always changing tax world. YOU NEED TO BE ABREAST OF WHAT THE IRS IS CONCENTRATING THEIR ATTENTION UPON TO AVOID FUTURE PROBLEMS.

At a seminar I attended recently, a former high-level IRS agent was the guest speaker and his discussion centered on HOT TOPICS at the IRS. They are shifting agents from other areas into employment tax compliance. Due to the severity of this topic we felt that it is important to share this information with our clients, referral sources and friends of the firm:

Some violations carry civil and Criminal Penalties


  1. You are the owner of an ‘S’ Corporation – or a ‘C’ Corporation and do not write yourself a pay check?
  2. Do you not file your payroll taxes timely?
  3. Do not pay your payroll taxes on time or at all?
  4. Do you treat your employees as subcontractors?

If you are the owner of a Corporation you are required by the IRS to pay yourself a reasonable salary. What is considered reasonable? A reasonable salary would be what you would pay someone to do your job, or what you would expect to be paid doing the same job for someone else.

What does this mean to you? If you are currently not filing or paying your payroll taxes you will be in serious trouble with the IRS and could be facing possible jail-time in addition to penalties and interest charges. What can happen? The IRS will assess penalties and interest. The interest and penalties will vary depending on how late the return is and how often you are late in filing your returns. The maximum penalty (not interest) for this is 25%. There are also additional penalties and interest for not making your payroll deposits on time, the maximum penalty (not interest) for this is 25%. This may also be considered a criminal offense if you have not deposited ‘trust fund’ monies on a timely basis (employee withholding and their share of payroll taxes).

If you treat your employees as subcontractors you must immediately correct the situation, if they are not really subcontractors. If IRS determines that a subcontractor is actually an employee you could be facing 100% penalties and interest on all payroll taxes that are due, you may even be facing Federal charges. If IRS feels that you have deliberately set out to defraud them, they might do a complete audit and can go back as far as the very first time you filed a tax return if they suspect fraud. If they determine that you have treated your employees as subcontractors they will penalize and charge interest starting with the first incidence.

If you are currently using a payroll service, make sure that the payroll company is filing and paying your payroll taxes on time!
There have been problems with payroll services not filing returns and remitting payroll taxes, but you are still liable.

If you are not currently taking a pay check, put yourself on the payroll immediately. If you are unsure as the difference between a subcontractor and an employee please read the information enclosed, this was taken directly from the IRS website.

It is your your CPA firm’s duty to comply with the rules and regulations set forth by the IRS. If we are your CPA firm, we cannot hold afford to take the responsibility of representing clients if they are not fulfilling their obligations. If it comes to our attention that you are not filing your payroll tax reports or making your payroll deposits, you need to comply or you cease being our client immediately. We are not saying that any of our clients are doing this we just want to make you aware that IRS is watching and is taking a stand on payroll violators.

If you have any questions, please call us. We can assist you with your payroll needs or refer you to a payroll company.

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