If you’re an executive of a company and having monetary troubles, it’s tempting to both hide that fact and to not pay your “Trust Fund” taxes. Trust Fund taxes are the payroll taxes you collect (from withholding) and match and pay to the IRS. If you want to get in trouble with the government, just don’t remit them. You’ll have trouble faster than I can type this paragraph. That’s not the first time I’ve given this advice, and it won’t be the last. Yet here’s another case where this allegedly occurred.
World Health Alternatives was a medical staffing company located near Pittsburgh, Pennsylvania. The company was publicly traded, and apparently doing well.
But that was allegedly a facade built on fraud. The government accuses Richard McDonald of fraud and tax evasion. He allegedly pocketed $2.2 Million the company received from selling stock (rather than have the funds go to the company). He’s also accused of falsifying company records regarding $2.3 million of unpaid payroll (Trust Fund) taxes. Finally, he’s also being accused of not filing tax returns from 2003 to 2005 when his income was between $430,000 and $3.2 million each year.
Needless to say, Mr. McDonald is looking at a very lengthy stay at ClubFed if found guilty of all the charges he faces. He’ll be arraigned this coming week.
Wish could continue a “Thread” on this issue. Putting aside deliberate cheating like above. It is not all that uncommon for small companies that are having financial problems to “borrow” the trust fund monies to try to keep their business afloat. In reality taking those funds is no different than embezzling from an employer. But at the time, the folks think it is the only way to keep their business afloat.
I was recently in the middle of some blog chatter with some others about small companies should ALWAYS set up LLC in form of S-Corp or C-Corp. This is a great example why maybe they shouldn’t. Hope the Tax Lawyer reads this.
After a small company owned by a husband &wife (automobile transmission shop) set up a new S-Corp as a result of a CPA’s advice. They had some money problems. Knowing no better and getting no better advice. They continued to take payroll on their books. It ended up there was delinquent 941 payments but over 60% of the delinquent payments were for their own two payrolls. Had they left well enough alone, there would have been no delinquency and no fines/penalties.
How do educate the small businesses in the USA if they have income/cash flow problems they immediately ceasae any payroll to themselves. They promptly diligently keep track of any loans by themselves or family to their business as loans to the business.
Jeff Day EA
Evansville, IN