Jail Time For Business Owners Who Don’t Pay Company’s Payroll Taxes?

Two weeks ago a Kentucky business owner was sentenced to 15 months and ordered to pay $49,991.00 in restitution to the Internal Revenue Service after pleading guilty to withholding federal income tax, social security tax and Medicare taxes from his employees but not paying the employment (payroll) taxes to the IRS.  Andrew E. Williams of Villa Hills, Kentucky owned Club Aqua, Inc., which operated a nightclub business called Club Ritz.  He also failed to file quarterly federal tax returns.  The guilty plea was entered on November 8, 2011, in Cincinnati, Ohio.

Mr. Williams entered a guilty plea after an investigation by special agents of IRS Criminal Investigations.  The plea agreement requires him to file complete and accurate tax returns and amended returns with the IRS for all of the tax years and periods in question up to and including the date of sentencing.  He also must pay all taxes, penalties and interest due and owing to the IRS, in full.

This true story shows that the IRS is stepping up its efforts to prosecute business owners who are not paying their company’s payroll taxes.  The only good news for business owners in this story is that Mr. Williams was ordered to serve his time in home confinement.  In other words, he will serve his sentence at home instead of in a federal prison.  This concession probably was negotiated as part of a plea agreement.  Had Mr. Williams chosen to defend himself at trial and been found guilty, he might have received a longer sentence and gone to prison.

Note:  I wrote this post to alert Colorado businesses to potential criminal penalties that can occur if you don’t pay the company’s federal payroll taxes over to the government.  Although the post gives general legal information, it is not possible to address all scenarios and questions in a few paragraphs.