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Health & Fitness

The IRS continues to encounter payroll fraud on the unwary business owner.

Here’s a little “heads-up” for anyone who has a payroll and needs to submit payroll related taxes. Although the vast majority of payroll services are reputable and allow entrepreneurs to do what they do best by relieving them of the often time consuming and complex task of payroll administration, the IRS continues to uncover some serious scams that can have potentially dire consequences the business owners involved.

Here are some recent examples:

* In February 2013, Vincent Mangione, a tax preparer in North Towanda New York, filed understated payroll tax returns for his clients. However, he collected the correct amount due, keeping the rest for himself. Vince is now spending 30 months in prison and paying over $800k in restitution.

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* In January 2013, Arthur Weiss, who ran a payroll service in Greensboro NC, failed to pay over $4m in payroll tax withholding for his clients to the IRS. He is enjoying free room and board at taxpayer expense over the next 185 months.

* In May 2013, Carolyn Dawson was sentenced to 24 months in prison and ordered to pay $1,843,674 in restitution for tax evasion and embezzlement. From 2007 to 2011 she was a bookkeeper for a greenhouse supplies wholesaler. During that time she diverted funds intended for tax purposes towards the payment of her own personal credit cards, attempting to cover up her fraud by not filing employment tax returns.

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It is important to remember that no matter what type of payroll service you use, you the employer, are responsible for the ultimate filing and payment of employment and withholding taxes. Here is an IRS link to the various types of payroll providers out there:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Third-Party-Arrangement-Chart

So, what can you do to protect yourself? The IRS has several recommendations:

1.       Make sure that your service provider uses the Electronic Federal Tax Payment System (EFTPS) when submitting payments on your behalf. This service maintains a history that you can access to ensure that your required tax payments are being made accurately and in a timely manner.

2.       Although the Service allows you to substitute your service provider’s address for your own, the IRS encourages you to not do so. This way should any issues arise, the IRS will be contacting you directly. Although having the IRS deal initially with your service provider may seem prudent and very convenient, it takes you out of the loop and leaves you vulnerable should something go wrong.

3.       Contact the IRS immediately should you receive a past due notice. This may be the first of many and you would want to get to the bottom of things as quickly as possible.

Another suggestion would be for you to spend a few extra bucks at tax time and ask your CPA to recalculate a couple payrolls for you to make sure that your service is getting the numbers correct.

To help you keep things straight here are a couple links that may prove useful:

http://www.tax.gov/calendar/

http://www.irs.gov/uac/EFTPS:-The-Electronic-Federal-Tax-Payment-System

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Notices-for-Past-Due-Returns

http://www.irs.gov/uac/Newsroom/Tips-for-Employers-Who-Outsource-Payroll-Duties

So finding a good payroll provider is a great way to streamline your business and make sure that things do get done properly. However, employing a payroll provider does not absolve you of any responsibility and may open you to additional risk if you don’t follow some basic steps and implement a few internal controls to protect your interest.

Finally, everyone’s individual situation is different. The resources that I used are listed in the links provided. Be sure to do your own research and consult with your own professional where you feel it is appropriate. Have a great day.





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