When Payroll Taxes Go Criminal

Payroll taxes can trigger criminal liability. This liability is set out in Section 7215. It says that:

Any person who fails to comply with any provision of section 7512(b) shall, in addition to any other penalties provided by law, be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than one year, or both, together with the costs of prosecution

Section 7215 sets out some procedural safeguards.

Section 7512(b) provides that if the IRS serves a delinquent taxpayer with a written notice “delivered in hand,” the taxpayer must deposit all payroll taxes that are due within two banking days after payroll is made into a special trust account. This notice is provided on an IRS Letter 903.

This letter includes the following warning:

The DOJ [Department of Justice, Tax Division] can also pursue criminal charges based on the willful failure to report and pay over withheld taxes (Section 7202 of the Internal Revenue Code). Willfulness is evident if an employer paid net wages and didn’t leave enough funds to make the required tax payments or used withheld trust fund taxes for other purposes. Convictions may result in imprisonment and other penalties. Other criminal statutes may also apply.

If you ignore and fail to abide by the warning in the Letter 903, then you might be subject to prosecution under Section 7215.

If indicted and charged, the government still has the burden to prove all elements of the crime beyond a reasonable doubt. This is a high burden for the government to meet.

Get Help With Your Payroll Tax Problem

An experienced tax attorney can help you understand your tax obligations for your employees and help resolve your payroll tax problems.  

Please call us at (713) 909-4906 or schedule an appointment with our criminal payroll tax attorneys.

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