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19 December 2017

How Not to Reduce Your Taxes (Part 2)

How Not to Reduce Your Taxes (Part 2)

It’s a bad idea not to pay your taxes. Eventually, the IRS will catch up with you and assess some major penalties on top of your back taxes. It’s an even worse idea to continue to ignore paying your taxes once you’re caught, which is what a Tennessee dentist recently found out the hard way, including potential “hard time” in prison.

According to the U.S. Department of Justice, the dentist filed her income tax returns on time for 2005 through 2013 but neglected to pay the $113,781 due in income and self-employment taxes for those years. The IRS took notice and discovered she had neglected to pay payroll taxes for several quarters during the same time. As a result, the IRS deemed her personally liable for paying over $160,000 in unpaid employment taxes, too.

Did she pay the IRS? No. Instead, she spent that same amount on personal expenses including private school tuition, expensive housing, and luxury cars. The IRS noticed (as they tend to do) and assessed even more penalties. As Forbes contributor Robert W. Wood points out, that’s when the case went “off the rails.”

“The IRS takes payroll taxes seriously,” Wood explains. “Although most payroll tax cases do not turn criminal, the IRS views using tax money withheld from employees as stealing from the U.S. Treasury.”

The story doesn’t stop there. Her tax evasion continued with a bizarre series of fund transfers and maneuvers (including switching from using her personal funds to using business funds) to keep her home and to purchase and lease cars including a Dodge Viper and a Porsche Panamera. In all, she admitted to causing a tax loss of $528,882.07.

Many business owners fail to understand the profound consequences of neglecting to pay payroll taxes. As a business owner, you are personally responsible for paying them under what the IRS calls a trust fund recovery penalty—even if you were unaware that the payroll taxes weren’t being paid. Try to cheat your way out of it, and you may just find yourself facing prison time, too.

Contact us for more information and click here for more on trust fund recover penalties and how one Steven Bankler, CPA, Ltd. client tunneled out from under the burden.

Image Copyright: nicoletaionescu / 123RF Stock Photo


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