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Trust Fund Taxes - Payroll

CFO of Soup Man, Robert Bertrand, has been indicted on tax evasion charges in Brooklyn federal court on Tuesday, according to federal prosecutors.

Apparently Mr. Bertrand has been “cooking the books” by paying employees in cash and stock in order to avoid the company’s tax obligations. The IRS estimates that based upon the amount paid “under the table”, the lack of Social Security, Medicare and Federal income tax deposits have led to a shortfall of about $600,000 in lost tax revenue.

The IRS estimates that $2,850,967.59 was paid to employees by the company in cash and unreported stock. By not paying at least the Trust Fund portion of payroll tax liability (that is the amount of Federal withholding, along with the employee’s share of Social Security and Medicare), not only is the company liable, but the IRS will also hold personally liable, anyone who decided to use the Trust fund portion of payroll taxes owed for anything other than paying the IRS. This personal assessment is referred to as “Civil Penalty”. We assume that in addition to criminal charges, Mr Bertrand was deemed a responsible person.

This is a clear cut illustration of a large scale payroll tax problem in which an employer for whatever reason, does not pay their tax. Maybe the lack of payment is based on refusal to do so, but more often these issues spring from an inability to pay. In most instances, business owners with cash flow problems get into this type of trouble. This is “borrowing” funds from the IRS. Of course there are many excuses we can use to "borrow" these funds and the business owner ALWAYS has full intent to make up the payments next week, next month, next period, next year - but that time never comes for some.

The real issue here is business owners are withholding their employee’s tax money and using it for their own purpose even if it is for business purposes. Keep in mind that the government will give credit for withholding to the employee, regardless of whether or not they ultimately receive the funds. To say the least…they don’t like this.

If things don’t turn around for these companies soon after the tax deposits stop, the liability grows (exponentially) and the employer get further behind. This can lead to an eventual shut down of the business. Furthermore, shutting down the business itself does not make the problems go away.

Remember, the responsible person is held personally liable for the Trust Fund portion of the liability via a “Civil Penalty”. The good news is this problem can be avoided. The key is to act now and make some changes. If you have cash flow problems, please give us a call and we would be willing to discuss options on how you can correct this problem.

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