Taxpayer Will Remember 2019 Memorial Day — from Behind Bars
Richard Spencer owns RS Sewing, a company that makes American flags and sells them to veterans’ groups and large retailers throughout the country. Spencer was convicted of failing to withhold taxes from workers he knowingly and willfully misclassified as independent contractors. For workers classified as W-2 employees, Spencer failed to pay over to the IRS taxes the company withheld from its employees’ wages. Judge Patricia Gaughan of the US District Court in Cleveland sentenced Spencer to two years in prison and three years of supervised release. In addition Spencer must pay restitution of $197,040,
“Richard Spencer did not have any problems with earning income from manufacturing the American flag, but he did have problems with paying employment taxes to the IRS that he withheld from his employees,” William Cheung, acting special agent in charge for the IRS’s Cincinnati Field Office, said in the press release.
- US Attorney’s Office, Northern District of Ohio - May 6, 2019
Misclassifying employees. Business clients often complain about the high cost of treating workers as employees — employment taxes, workers’ compensation insurance and benefit plans. But for Mr. Spencer, who had been warned about his misclassification of workers in a prior IRS audit, his cost was not just money but his freedom.
Trust fund withholdings. The IRS takes seriously its role in collecting withheld taxes from the business. If the business is out of money, the IRS can use §6672 to collect trust fund taxes from the responsible person who willfully failed to pay over the money to the IRS. Section 6672 skirts around any liability protection provided to the individual owner by a corporate or LLC structure for purposes of trust fund withholdings.
Who’s responsible and who’s willful?
- A responsible person - one who had a duty to collect and pay over the taxes. The following have been held to be responsible: board members, corporate officers, managers, payroll check signers, and payroll report signers.
- The responsible person must have acted willfully in failing to pay and collect the taxes. “Willful” can be nothing more than knowing the liability exists and paying another creditor.
Tax classes at Western CPE’s resort conferences cover payroll tax developments as well as updates and news for individuals, businesses and real estate investors.