Employment Tax Disputes
Questionable Employment Tax Practices
Disputes and controversies involving the payment of employment taxes can lead to serious problems for businesses. Federal and state agencies have ramped up their employment tax compliance efforts and are sharing tax information and collaborating on audits to identify employers who may be taking actions that violate of federal and state employment tax laws. The IRS Questionable Employment Tax Practices (QETP) program represents an ongoing, coordinated effort to uncover employment tax schemes and illegal practices. Under the QETP, the IRS, NASWA (National Association of State Workforce Agencies), the United States Department of Labor, the FTA (Federation of Tax Administrators) and state workforce agencies in several states have joined together to increase compliance with employment tax filing and payment rules at the federal and state levels.
Employment tax schemes can involve a number of different illegal activities. The IRS has developed a list of some of the most prevalent forms of employment tax evasion. These tax evasion schemes include:
- Pyramiding - This practice occurs when a company withholds taxes from employees but intentionally fails to remit them to the IRS. In an effort to discharge its liabilities, the company will ordinarily file for bankruptcy and then start as a new business, repeating the same cycle under a different name.
- Offshore Employment Leasing - While employee leasing is a legal business practice, it can be subject to abuse when an offshore employee leasing company is used in an effort to avoid paying employment and income taxes.
- Paying Employees in Cash - While businesses are permitted to pay their employees in cash, employment taxes on cash compensation must still be remitted to the IRS.
- Misclassifying Worker Status - When an employer improperly classifies an employee as an independent contractor to avoid paying employment taxes, the employer will be liable for the employment taxes owed and may be subject to fines and penalties.
- Filing False Payroll Tax Returns/Failing to File Payroll Tax Returns - The IRS is well aware that employers may understate wages on tax returns or fail to file employment tax returns to avoid paying employment taxes.
The IRS takes employment tax compliance efforts very seriously. When the agency suspects that a business has engaged in one these schemes or has taken other intentional actions to evade their employment tax obligations, the business is likely to face severe consequences. The IRS may pursue a civil audit of the company that can lead to substantial fines and penalties, including tax liens against business property. The IRS can also launch a criminal investigation and refer the business for prosecution. If a conviction occurs, the government can impose harsh penalties, including prison sentences for the individuals determined to be responsible for the illegal activities.
A Virginia Business Tax Lawyer Can Help
If you have questions about your employment tax obligations or fear that your company may be audited by the IRS or a state agency, you should contact the tax law attorneys at Thorn Law Group. Our firm has extensive experience representing business owners throughout the Virginia region and beyond who are involved in sensitive employment tax disputes with the IRS and state taxing authorities. We understand the challenges you are facing and will work directly with you to resolve your employment tax dispute as quickly and efficiently as possible.