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I initially posted this on the 'ask a foolish question' board. Someone there mentioned this might be a better place. Any insight would be helpful. Mark

Following is an excerpt from a newspaper article

"According to investigators, (the employer) stopped paying over payroll taxes (income taxes withheld and FICA) withheld from employees' wages as well as the matching portion of FICA totalling about $4.7 million from the IRS."

This is a real scenario and my employer. This went on for about 6 years from 2003 to 2009.

One of the comments in the article mentioned 2 things. 1) that the fed gov't. could come after us as employees to collect taxes that should have been paid, and 2) that our social security benefits will be reduced by the amount that wasn't paid in.

Are these correct statements? I called social security yesterday and the person I talked to was no help. The case doesn't go to court until
Sept. 10. Should I be getting a lawyer? What are the repercussions if I do nothing?

The article states that she faces up to 5 years in jail and a $250,000 fine. WHAT? A $250K fine in exchange for $4.7M!!!!!! Her reason for not sending it in as quoted in the paper was "The IRS wasn't knocking down my door for it."

If this is going to affect my social security benefits, (and the rest of us who worked there during that time) wouldn't there be a way to include in her fines a way to repay the money that should be in our accounts? Class action suit?

I know you probably can't give legal advice in here, but some suggestions as to where I might find some of these answers would be helpful.

Thanks in advance for any thoughts or suggestions.

Mark
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Hi,

This happened to me, on a much smaller scale, back in 1974. I was working for someone who was supposedly withholding and submitting to the IRS. It turns out that they weren't. This was for only a 6 month period and they never provided a W2 or any other documentation. I filed my tax return reporting what were the facts, I got my tax refund as if the money had been collected and my SSA account was also credited with the earnings. The IRS did not try to collect anything from me. They went after the company.
So unless things have changed, I think you are probably okay.

JimA
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Following is an excerpt from a newspaper article

"According to investigators, (the employer) stopped paying over payroll taxes (income taxes withheld and FICA) withheld from employees' wages as well as the matching portion of FICA totalling about $4.7 million from the IRS."

This is a real scenario and my employer. This went on for about 6 years from 2003 to 2009.

One of the comments in the article mentioned 2 things. 1) that the fed gov't. could come after us as employees to collect taxes that should have been paid, and 2) that our social security benefits will be reduced by the amount that wasn't paid in.


By way of background, I'm a retired IRS collection officer intimately familiar with this type of case. If you'd care to provide a link I'd like to read the article. It's rare they get everything right.

Employees get their credit for SS/Medicare earnings and income tax withholding from the W-2 whether or not the employer actually pays over the money. Given the length of time you say this went on the employer must have been issuing correct W-2's.

I do suggest that you request your SS earnings record just to be on the safe side. You can do that online at www.ssa.gov.

The government can go after employees of the corporation who were responsible for and had the authority to ensure payment of the withheld taxes. If you were one of these people in the IRS's eye you'd know it by now.

This whole process is usually administrative, so I'm unsure exactly what it is that's going to court. That's another reason I'd like to read the article.

If you're still concerned, please feel free to ask more.

Phil
Rule Your Retirement Home Fool
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This whole process is usually administrative, so I'm unsure exactly what it is that's going to court. That's another reason I'd like to read the article.

Google provided this link to a newspaper article http://www.denverpost.com/breakingnews/ci_22780878/woman-adm... and this link to a press release from the US District Attorney's Office, District of Colorado http://www.justice.gov/usao/co/news/2013/mar/3-13-13.html

The article and press release both say that there has already been a guilty plea, and what will occur in court in September is the sentencing.

One of the comments to the newspaper article indicated (incorrectly) that the employees wouldn't get credit for the taxes that were withheld from their paychecks.

AJ
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You should be receiving annual statements from Social Security. Are the statements showing credits for the years in question?
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Thanks for the link, AJ.

Wow, criminal failure to pay. Kudos to that US Attorney. In my experience these cases were almost impossible to get accepted for development, let alone prosecution. The biggest problem was you had to show an ability to pay, but if you could find the money for payment you'd be nuts not to grab it. The fact that it was a criminal prosecution also explains a lot about why it went on so long.

Phil
Rule Your Retirement Home Fool
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I'm surprised this went on for 6 years. I'm aware to two businesses in this area that failed to remit payroll taxes collected to the Feds. One got a visit from Federal agents before the year was over. The other in the second year. Maybe they did something else to throw up red flags or maybe an employee found out and blew the whistle, but it sure didn't take long for them to get caught.
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Phil and AJ, and others,

Thanks for all the great info. That link is my situation. I work in a different office though (branch of the franchise).

My SS statements have always showed the correct amount so that puts me at ease. Might try and get a piece of that $4.7M for emotional and reputational damage. :)

What is the likelihood of the IRS coming after her assets (including the branches) to cover their losses? Who is imposing the jail and fine? Not the IRS, right? Will there be an attempt to collect that money?

One of the statements in the DA's release:

“Employers who commit Employment Tax Fraud by failing to remit employment taxes are not only defrauding the United States government, they are creating financial havoc for their employees,” said Stephen Boyd, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.

What havoc is he referring to? From reading the posts, it sounds like I should be fine. I guess I can add havoc to my damages. (Again, :))

Well, thanks again.
Mark
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What is the likelihood of the IRS coming after her assets (including the branches) to cover their losses?

Once the criminal matter is resolved they'll resume collection activity. (Once a case is accepted for development of a criminal case they stop all civil collection efforts.) I don't know what type of entity owns the business, but assuming it's a corporation, they look first to corporate assets. If they can't collect in full there they turn to the responsible persons in the business. If they had enough evidence against her for a criminal case you can be sure they have enough evidence to assess the unpaid withheld taxes against her and pursue her assets.

Who is imposing the jail and fine? Not the IRS, right? Will there be an attempt to collect that money?

Criminal penalties, including the fine that was mentioned, are imposed by the courts. I believe the US Marshall's office deals with things like payment of fines.

Sometimes probation orders will include a requirement to pay the civil liability as well as any fines.

One of the statements in the DA's release:

“Employers who commit Employment Tax Fraud by failing to remit employment taxes are not only defrauding the United States government, they are creating financial havoc for their employees,” said Stephen Boyd, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.

What havoc is he referring to?


Beats me. Sounds like press conference hyperbole.

Phil
Rule Your Retirement Home Fool
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“Employers who commit Employment Tax Fraud by failing to remit employment taxes are not only defrauding the United States government, they are creating financial havoc for their employees,”

In this case, W-2s and reporting to Social Security was done. When the fraud is more planned, statements for withholding are not given to employees and reporting to the government isn't done. It makes it difficult for the employee to prove withholding.

Many years ago, an acquaintance worked briefly for a small company. The owner was highly irate that she included the amount being withheld on the paycheck stubs. She prepared payroll checks, but for obvious reasons refused to accept responsibility or authorization for signing checks.
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Hello again,

I have a Roth 401(k) through this employer. Is that money at risk? My account shows that I am 100% vested and clearly lists my name on the account, but it also shows Overhead Door on there as the name of the plan. The plan is administered through our payroll (paychex).

I appreciate all the replies so far. I hope to keep coming back here as I have more questions or as things develop.

Mark
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I have a Roth 401(k) through this employer. Is that money at risk? My account shows that I am 100% vested and clearly lists my name on the account, but it also shows Overhead Door on there as the name of the plan. The plan is administered through our payroll (paychex).

I appreciate all the replies so far. I hope to keep coming back here as I have more questions or as things develop.


It depends what you mean by "at risk". In the absence of any clearly illegal actions by your employer, your Roth 401(k) is not at risk from your employer becoming insolvent. It is still at risk for losses due to the investment decisions made by you or the entities (such as mutual funds) you entrust your assets to. Your employer's name is on the fund because they are the sponsors of the plan. They decide who the administrators are (such as Fidelity) and what investment choices are available to plan participants.

Ira
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I have a Roth 401(k) through this employer. Is that money at risk? My account shows that I am 100% vested and clearly lists my name on the account, but it also shows Overhead Door on there as the name of the plan. The plan is administered through our payroll (paychex).

Since the plan is administered by your payroll provider, it would be very difficult, if not impossible, for your employer to get to your money once it's in your account. However, since your employer was caught not submitting the taxes that were withheld from your paycheck, you might want to confirm on your 401(k) statements that all the money that was withheld from your paycheck was actually deposited into your account. Plus, if you were promised any match from your employer, you should check your statements to confirm that you actually received it.

AJ
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If the company goes through bankruptcy, there could be a time that you can't access the account. Your account is not an asset of the corporation, but the bankruptcy court may have to issue the official order removing the 401K plan from the bankruptcy. This did occur with one of my previous employers. It has been awhile, and maybe the process has been streamlined.
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Phil (mainly) and others,

the wheels in my brain just keep just keep turning...

After the sentencing in September, if I am understanding this right, the IRS will then seek to collect on the $4.7M (plus interest and penalties?).

Regardless of the final amount, if they do not have that much money lying around, how will this likely pan out?

Will the IRS seize assets and proceed to auction? This would effectively shut down the business, wouldn't it? If so, would I have an opportunity to purchase any assets, or would they just go to some government clearing house?

Or would they allow her to set up a payment plan and things would be business as usual for the employees?

If given an opportunity to purchase the branch I work in, would I be better off to make a move now, or wait until after sentencing?
(an asset only purchase was offered but no numbers have been discussed - interestingly this offer was made only days before the newspaper article).

I guess the bottom line is, will I be out of a job come September?

I know every situation is different and there is no way anyone can accurately know how this will all pan out, but I am looking for general trends in these types of cases.

The employer is claiming this is a personal matter and is not open to discussion as to the future of the business. I can understand their reluctance, but 50 or so people are at their mercy. Am I blowing this out of proportion? Making a mountain out of a mole hill? Beating a dead horse? ......

Thanks again for any insight.

Mark
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After the sentencing in September, if I am understanding this right, the IRS will then seek to collect on the $4.7M (plus interest and penalties?).

That's what I would assume, depending on what happens at sentencing. Remember that eligibility for time in the slammer doesn't automatically mean she'll go there. I would assume there would be some period of probation, which would include restitution. How this would affect resolution of the original civil liability I don't know.

Regardless of the final amount, if they do not have that much money lying around, how will this likely pan out?

Will the IRS seize assets and proceed to auction? This would effectively shut down the business, wouldn't it? If so, would I have an opportunity to purchase any assets, or would they just go to some government clearing house?


Seizure and sale of assets is certainly one option, assuming there's anything with enough equity to warrant seizure. The sales are at public auction, usually in the county where the property is located. Anyone can attend and bid, but if things work the same in Denver as they did in Chicago, there are pros who usually wind up getting the stuff through high bid. We called them "the 40 thieves."

Even if the assets of the business are seized and sold that doesn't necessarily mean that the business will close. It could keep operating under different ownership. I'm unsure of exactly what the legal structure of this business is, so it's hard to get very specific. I would just say that if a business isn't paying its payroll taxes it's not a good message about the business's finances.

Or would they allow her to set up a payment plan and things would be business as usual for the employees?

It could happen.

If given an opportunity to purchase the branch I work in, would I be better off to make a move now, or wait until after sentencing?
(an asset only purchase was offered but no numbers have been discussed - interestingly this offer was made only days before the newspaper article).


Since the IRS has surely protected the government's interest with filed notices of lien they would be involved in any sale. I'd say that if you want to pursue a purchase go ahead and do it. Just make sure you have good financial and legal advice.

The employer is claiming this is a personal matter and is not open to discussion as to the future of the business. I can understand their reluctance, but 50 or so people are at their mercy. Am I blowing this out of proportion? Making a mountain out of a mole hill? Beating a dead horse? ......

I'll just suggest that the best time to look for a job is when you don't need one.

Phil
Rule Your Retirement Home Fool
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Here I am again...

Still working for the door company...

Sentencing is finally next week...On the 10th.

I just got to thinking recently, will the IRS be there waiting for the gavel to drop, or is there likely to be some time after sentencing before the IRS swoops in and does whatever it is they are going to do?

Is it possible Beth Ann already knows the outcome and the IRS's plan?

As it is, they are sure making it appear as if things are perfectly normal: orders coming in, new health insurance, new phones, not a word about anything...Our accounts receivable person didn't even know anything at all about this whole thing.

I'll be sure and post again. I just hope they do not come in the middle of the night to tow my work truck away with all of my personal tools and belongings in it....

Mark
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