There’s nothing wrong with paying employees in cash. Indeed, in some industries it’s the norm. However, you still must withhold payroll taxes and properly report the earnings. The owners of a Massachusetts temporary agency found that out this week.
Michael Powers and John Mahan owned Commonwealth Temporary Services, Inc. in Stoughton, Massachusetts. Powers and Mahan believed that if it wasn’t written down or reported, it didn’t happen. Unfortunately for them, the US Department of Justice proved that they paid employees more than $25 million in cash and didn’t report it. They did save $7 million in taxes (and saved more on workers compensation).
But they’re not going to get to enjoy that money; they were convicted of one count of conspiracy to defraud the Internal Revenue Service and their workers compensation insurers, one count of mail fraud and two counts of false tax returns. Instead of making a little less money but complying with the law, they’ll likely pay a lot of fines and enjoy ClubFed.
As I’ve said before, the government takes trust fund taxes very seriously. This isn’t the area to mess around in.