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What is considered willful failure to remit employment taxes?

On Behalf of | Mar 24, 2016 | Corporate & Business Tax

If you are a business owner in New York, willful failure to pay employment taxes can have a bevy of negative ramifications for both you and your business. The Journal of Accountancy lists some of the potential ill-effects you may be subject too, including being held personally liable for taxes owed.

First you must understand what constitutes willful failure. Nonpayment is considered willful if it can be proven that taxes were intentionally or consciously withheld by a responsible party. To this end, it must be proven that you were previously aware of discrepancies in remitting taxes as necessary to the Internal Revenue Service, and that instead of remedying the issue immediately, you instead elected to use this money for payment of other expenses.

In order to be held accountable, it must be proven that you are a responsible party that has the authority to impose your authority on appropriate staff. The IRS generally employs a test to show that you are indeed responsible for payment of taxes, which can involve a review of several factors. For instance, if you are an integral component of management activities, you are considered a responsible person in the eyes of the IRS. Other factors include your status as officer or director, a position of authority over your business’s payroll process or the ability to hire and terminate employees.

As for the consequences of nonpayment, the IRS has been known to aggressively pursue individuals with the authority to oversee payroll taxes but who fail to act. In extreme cases, you may even be charged with a felony, entailing a five-year prison term and/or a $10,000 fine. While these consequences typically feature when it can be proven that payroll taxes were used for personal expenses, lesser cases will still incur exorbitant penalties, which could possibly spell disaster for your business. It should be understood that this information is solely for educational use and not for legal advice.


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