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March 26, 2017


Payroll tax noncompliance: Is more criminal enforcement coming?

Falling behind or running into other trouble with keeping track of employment taxes and paying them over to the government is a problem for many employers.

A new report from the watchdog agency for the IRS contains detailed information about the scope of the problem.

In this post, we will use a Q & A format to update you on that report.

Who issued the report?

The Treasury Inspector General for Tax Administration (TIGTA) issued the report. TIGTA is a watchdog agency within the Treasury Department that monitors the IRS.

How much noncompliance with payroll tax obligations did the report find?

The numbers are startling large. According to TIGA, the amount of unpaid employment taxes (including interest and penalties) was $45.6 billion at the end of 2015. About 1.4 million employers were in arrears on those taxes, which include Social Security and Medicare taxes.

What about the Trust Fund Recovery Penalty?

The Trust Fund Recovery Penalty is a way for the government to go after individuals who are deemed to be responsible for unpaid employment taxes.

This penalty remains an important civil enforcement tool for encouraging employers to comply with employment tax obligations under the law. The IRS assessed it about 27,000 times in Fiscal Year 2015.

The IRS has fewer revenue officers, however, than it did a few years ago. As a result, the number of employers the Trust Fund Recovery Penalty is assessed against is going down – even as payroll tax noncompliance increases.

Will the IRS be likely to use criminal prosecution more often going forward to stop employment tax embezzlement?

Yes. TIGTA’s report contained strong language about embezzlement of payroll tax money as a serious crime.

TIGTA is recommending that the IRS Collection division refine and extend its criteria for referring cases to the Criminal Investigations division.


Tax Crimes