Employment Tax Fraud

International Tax Whistleblower Representation

Federal law requires employment tax withholding and payment by employers. Failure to do so can be considered tax fraud, and violators may face both civil and criminal penalties.

Employment taxes consist of:

• Federal income tax withholding
• Social Security taxes
• Medicare taxes
• Unemployment taxes

Some states also have withholding requirements for other employment-related taxes such as contributions to a workers’ compensation fund.

Employment Tax Fraud Schemes

Common employment tax fraud schemes include:

• Pyramiding – A business withholds taxes from its employees but intentionally fails to pay them to the IRS. As these quarterly tax withholdings accumulate, or “pyramid,” it becomes increasingly difficult for the employer to catch up on back taxes, often resulting in bankruptcy.
• Unreliable third party payers – This scheme generally involves either payroll service providers or professional employer organizations who fail to pay collected employment taxes to the IRS.
• Frivolous arguments – Employers may use a variety of false or misleading arguments to avoid paying employment taxes. Many of these schemes are based on manipulating “Section 861” of the tax law.
• Off-shore employee leasing – A taxpayer resigns from his current employment position and signs an employment contract with an off-shore employee leasing company, who indirectly leases his services back to his original employer. The employee performs the same services before and after entering into the leasing agreement and generally receives the same payment for his services. However, his salary is sent off-shore as “deferred” compensation, where employment and income taxes are potentially avoided.
• Misclassifying worker status – An employer incorrectly treats an employee as an independent contractor to avoid paying employment taxes.
• Cash payments – Employers often pay employees in cash to avoid reporting the income and paying the appropriate employment taxes.
• Payroll tax return schemes – An employer files false payroll tax returns or fails to file payroll tax returns altogether.
• S Corporation officer compensation treated as corporate distributions – S Corporations sometimes improperly treat officer compensation as corporate distribution instead of wages or salary to avoid paying employment taxes.

Experienced Tax Whistleblower Representation

Kenney & McCafferty represents accountants, money managers, and individuals working in finance departments who have knowledge of large scale employment tax fraud. Our lawyers have extensive experience in this complex area of law, and we can make sure your rights are protected so that you can maximize your tax rewards.

Our firm also possesses the experience to assess any whistleblower risks and provide whatever protections are necessary before proceeding with a whistleblower claim.

If you have knowledge of employment tax fraud totaling $2 million or more, please contact our tax whistleblower attorneys today. Kenney & McCafferty will consult with you about your case, without obligation. All communications with Kenney & McCafferty attorneys regarding your case are confidential and protected by attorney-client privilege.