Federal taxes are in large part paid through income withholdings by employers. The employer is trusted to withhold the right amount from employee wages and turn that sum over the IRS.
In Boston, a longtime owner of the city’s largest taxi company hadn’t been doing this. Coupled with the tax issue were other employment law lapses. The company hired drivers who were in the U.S. without proper documentation and never paid overtime when employees worked more than 40 hours in a week.
As has been reported, the owner accepted responsibility and will pay fines that total more than $2.3 million.
The amount of the fine indicates that severity of the Trust Fund Recovery Penalty (TFRP). It may also be the result of lapses that had been going on for awhile. It is unclear whether the cab company withheld the taxes, but never paid them to the IRS or simply didn’t withhold any taxes at all.
Employers must generally withhold federal income taxes from employee wages. They also need to collect a portion of social security and Medicare taxes and pay a matching amount.
When an employer does not collect these taxes and then pay them to the IRS it can be assessed a TFRP. This penalty is equal to the amount that was not properly deducted or paid. As penalties go this one is steep and is often called the “100 percent penalty.” For this reason, regardless of potential criminal charges, it is critical to consult a tax attorney immediately if the IRS questions your payroll practices.
For the cab company owner, civil penalties were not the only issue. He was also charged with federal criminal charges and could serve up to two years in prison.
Whenever federal criminal charges include tax offenses, seek immediate counsel from an attorney with a track record of handling criminal tax matters not solely criminal defense.