Several criminal provisions surrounding employment tax and withholding exist including willful failure to collect and pay over taxes, failure to collect and pay over taxes after notice, failing to furnish W-4 form, or furnishing false W-4 form and supplying false withholding information. Any person who is required to furnish a Form W-2, Wage and Tax Statement, to employees and who willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement in the manner, at the time, and showing the information required may be in imprisoned for up to one year and fined up to $1,000.
These employment tax provisions are very broad in that any person who is required by law to collect, account for, and pay over any employment tax who willfully fails to collect or truthfully account for and pay over the tax commits a felony punishable by imprisonment of up to five years and/or fines of up to $100,000. The statute of limitations for these offenses is generally three years and begins to run on the due date of the applicable payroll tax payment.
Prosecutions are rare under the failure to collect or pay over taxes provision but there are a few reported cases involving these provisions. The reason for this is that judicial interpretations in this area have consistently permitted defendants to show that their failure to pay the taxes was not willful because they had used the funds in unsuccessful attempts to keep their businesses afloat.
Any person required to collect, account for, and pay over any employment tax that fails to do so may be given notice by the IRS that requires that all subsequent deposits of FICA and withholding taxes be paid into a special bank account held in trust for the United States. Theses deposits must be made within two banking days of subsequent post notice collections and must be paid over to the government monthly. Any deviation with the required deposit procedures can lead to prosecution. Strict criminal liability for a misdemeanor may be imposed on any person who, after receiving notice from the IRS, fails to collect, truthfully account for, deposit to a special bank account, and pay over to the government trust fund taxes. Failure to collect or pay over taxes after notice is a misdemeanor punishable by imprisonment for up to one year and fines of up to $5,000.
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