A relative was telling us about a problem at his job (or his ex-job as he’s starting a new job for reasons that will be clear).
He works for a small business and the owner withholds his income taxes. The owner gave him a W2 and my relative filed his returns and figured out the amount he would be getting back as a refund.
Then both the IRS and the state sent him back letters telling him he was not getting any refund because he hadn’t paid any taxes.
There’s an ongoing investigation. Apparently his employer was withholding the money from his employees but not forwarding that money to the government. My relative has been able to produce the paystubs and W2’s that demonstrate that he reasonably believed his taxes were being paid so he’s not facing any accusations of fraud.
But my relative (and the majority of my family members) feel that this will all fall completely on the employer. They feel that the IRS and the state tax bureau will go solely after the employer for the unpaid taxes.
I (and a couple others) expressed a different opinion. We said that the tax agencies might feel that the taxes are ultimately my relative’s responsibility and they’re going to expect him to pay them even though the employer was supposed to have done it. They’ll essentially say “You pay us and then you can sue your employer to try and get your money back from him.”
The employer broke the law; your relative did not. The employer would not only have to pay the amount he withheld from your relative, but also various fines and interest charges; thus they’d get more money from him than from your relative.
There’s next to no chance the IRS would go after your relative.
I think the IRS would be raked over the coals for going after someone to “pay” their taxes twice: once by getting a paycheck reflecting all the deductions that the employer was stealing, and a second time by forcing him to shell out of his post-tax salary all the money that the employer had already stolen, and then telling the employee to recover his taxes from a deadbeat employer.
Although it only takes half a brain to work in government, I think it would take a civil servant with less than an eighth of a brain to suggest that the employee should cough up the money his boss stole.
I think the way it works is that the employer is an 'agent" of the government, collecting on behalf of them. (Ditto the merchant collecting sales tax.) If the money fails to make the final leg of the journey, that is between the employer and the IRS to sort out.
I could have been clearer: I was referring to the stupidity of how the whole affair would look if it hit the news, rather than the legal authorities of the case.
I doubt it. One of the things we discussed was how it’s virtually impossible to get away with this crime for more than a year. You can pocket your employee’s money for that long easily enough but as soon as he files a return, your crime will be uncovered. And your victim has an actual receipt for the money you stole.
IANAL, but I can’t see how it would be fair to go after the employee. He paid his taxes fair & square. Unless he was the payroll processing guy, he had no way of knowing that his employer was not sending the money to the IRS.
It does happen frequently, just not by the same people for very long, as Nemo suggests. But failure to remit withholdings for taxes to the federal and state authorities, is a common crime by companies or employees that manage the remittances.
And its often done not out of an intention to steal, but because the company has cash flow problems - as soon as that big job comes through, they’ll send the IRS all that money…happens with small businesses ALL THE TIME.
Yeah, but if those employees have quit, your new employees might not know. Even the employees who know of the problem may be desperate enough to stay with you. It can (and does) happen year over year in some businesses.
For example, one employer I saw this happen with was not only in debt to the IRS for more than a year of back taxes, they owed their office manager $50k in back pay. The office manager kept hanging on, hoping that money would come in to sort it all out.
The employees might not know if there’s a turnover. But the IRS is going to know and they have no sense of humor about people holding out money.
The “best” plan for doing this would be if you had a relatively large company and figured you could pocket a lot of money in that first year and then go on the run with what you stole.
The relative is owed the refund but I suspect the IRS first has to confirm precisely what that refund should be, and that involves auditing the ever-living fuck out of the employer to get those records.
Assuming that the amount withheld was more than the relative owed in income taxes for the year, yes.
But as Ferret Herder pointed out, the claim will be investigated first. But, not to worry, interest will accrue if they don’t refund the money soon after April 15th. (Sorry, I always forget how long they have before they have to pay interest.) State regulations may vary.
This happened to a distant cousin of mine - his employer kept all the withholdings, and left the country shortly before the fraud would have been discovered. While he did not have to pay taxes again (and I think he got his refund eventually), he was also not eligible for unemployment insurance because the premiums had not been paid, even though they were taken out of his paycheck. That turned out to be a major hardship, and as far as I know he never recovered anything for it.