Payroll tax evasion is exploding says the IRS inspector general for taxes in a newly released report. As of the end of 2015, 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes, interest and penalties. Three-quarters of that was owed by employers who hadn’t paid payroll taxes in a year. That group has tripled in the past 17 years.While that noncompliance has been soaring, however, IRS enforcement has been waning because of understaffing at the agency. The number of employers penalized for underpaying payroll taxes is down nearly 40 percent in the past five years, and there are fewer than 100 criminal convictions a year related to evasion.
“Employment tax embezzlement is an especially egregious crime because the employer or payroll service provider violates their fiduciary responsibility to remit the taxes on behalf of their employees,” said J. Russell George, the IRS inspector general for taxes.
Importantly these very taxes serve to fund programs such as Medicare and Social Security. In many cases, businesses skip employment tax payments intentionally as a way of freeing up cash. The inspector general recommended that the IRS use data analytics to try to root out such offenders and refer them for prosecution. Whistleblowers revealing major tax fraud to the IRS who qualify can receive upto 30 percent of what the government recovers.
Jeffrey Newman represents whistleblowers including IRS whistleblowers.