NATIONALLY RECOGNIZED FEDERAL LAWYERS
Can business owners go to jail for payroll tax?
|Last Updated on: 8th October 2025, 11:27 am
Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – who has many, many years of experience as a seasoned criminal defense attorney. Our team has over 40 years of combined experience successfully handling hundreds of federal criminal cases. If you’re here, it’s because you’re in serious legal trouble – and you need the best possible defense.
We’ve handled high-profile cases that others said were unwinnable. Cases like Anna Delvey’s Netflix trial, the Ghislaine Maxwell juror misconduct case – these are the types of cases we’re known for. When federal prosecutors come after business owners for payroll tax violations, they’re not playing around.
Can business owners go to jail for payroll tax violations? Yes – and it happens more often than you think. The IRS Criminal Investigation Division secured over 1,571 convictions in 2024 alone, maintaining a 90% conviction rate. When it comes to payroll taxes, federal prosecutors view this as theft from the government. You withheld money from your employees’ paychecks – money that was never yours to keep – and you didn’t turn it over to the IRS. That’s a crime.
What Makes Payroll Tax Cases Criminal
Not every payroll tax problem becomes a criminal case. The IRS distinguishes between civil penalties and criminal prosecution based on one word: willfulness. If you made an honest mistake, forgot to file, or couldn’t pay due to cash flow problems – that’s typically a civil matter. You’ll face penalties, interest, maybe the Trust Fund Recovery Penalty that makes you personally liable for 100% of the unpaid taxes.
Criminal cases are different. Under 26 USC § 7202, prosecutors must prove you willfully failed to collect, account for, or pay over the tax. Willfulness means you knew about the legal duty and intentionally violated it. Using withheld employee taxes to pay other business expenses, your mortgage, a new car – that shows willfulness. The government views those withheld funds as trust fund taxes, money that belongs to the employees and the federal government, not to you.
When you’re running a struggling business and you’ve got to choose between payroll taxes and keeping the lights on – we understand that pressure. But federal prosecutors don’t care about your business struggles. They care that you took money from employees’ paychecks and spent it on something else.
The Trust Fund Recovery Penalty Comes First
Before criminal charges, the IRS usually goes after “responsible persons” with the Trust Fund Recovery Penalty. A responsible person isn’t just the owner. It’s anyone who had the duty and power to direct the collecting, accounting, and paying of trust fund taxes. That includes CEOs, CFOs, bookkeepers, outside accountants, even board members of nonprofits.
The IRS conducts Form 4180 interviews to figure out who’s responsible. They ask about your role – who signed checks, who made decisions about which bills to pay, who had access to bank accounts. If they determine you’re a responsible person and you willfully failed to pay, they assess a penalty equal to 100% of the unpaid taxes. This penalty is personal – they can go after your assets, your house, your bank accounts.
Multiple people can be held responsible for the same unpaid taxes. The IRS calls this “joint and several liability” – they can collect the full amount from any responsible person. Three people responsible for $500,000? The IRS can pursue the entire amount from just one person.
Getting hit with the Trust Fund Recovery Penalty doesn’t mean you’re facing criminal charges – not yet. But it’s a warning sign. If the amount is large, if there’s a pattern of nonpayment over multiple quarters, if the IRS believes you intentionally concealed the nonpayment, they may refer the case to IRS Criminal Investigation.
When Criminal Prosecution Happens
The IRS Criminal Investigation Division doesn’t prosecute every payroll tax case. They focus on cases involving substantial amounts, repeated violations, or aggravating factors like lying to investigators or creating fraudulent records. In 2024, the average prison sentence in tax cases was 37 months – over three years.
Recent cases show the range. A Virginia business owner who failed to pay over $1.4 million in withheld taxes received two years in federal prison. A California staffing company owner who evaded nearly $30 million in payroll taxes got eight years and had to pay over $38 million in restitution. The dollar amount matters, but so does the conduct. Did you file false returns? Create shell companies? Pay yourself bonuses while not paying payroll taxes?
Under 26 USC § 7202, conviction carries up to five years in prison and fines up to $10,000. The federal sentencing guidelines calculate your sentence based on the tax loss amount and your criminal history. If you obstruct the investigation, that increases the sentence. If you accept responsibility early, that can reduce it.
What Triggers IRS Criminal Investigation
The IRS doesn’t randomly investigate businesses. Large amounts of unpaid taxes over multiple quarters – that gets attention fast. Discrepancies between what you reported on Forms 941 and what you actually deposited. Closing one business with unpaid payroll taxes and immediately opening a new one under a different name – that’s called “pyramiding,” and investigators hate it. The IRS has partnered with financial institutions through CI-FIRST to identify suspicious banking activity related to payroll tax fraud.
Once IRS-CI opens a case, you’re in serious danger. These special agents are law enforcement officers with badges and guns. They’re building a case for prosecution, not trying to help you resolve a tax problem. Anything you say to them can and will be used against you in court. This is when you need a federal criminal defense attorney immediately – not a CPA, not a tax resolution company, a lawyer who handles federal criminal cases.
Why You Need a Federal Criminal Defense Attorney Now
At Spodek Law Group, we’ve represented clients in federal criminal cases across the country. We understand how federal prosecutors think because we have former federal prosecutors on our team. They know how the government builds these cases – and how to defend against them.
If you’re facing a Trust Fund Recovery Penalty, if IRS-CI has contacted you, if you know you have unpaid payroll taxes – don’t wait. The worst thing you can do is ignore this and hope it goes away. The IRS doesn’t forget. They will find you, they will assess penalties, and if the case is serious enough, they will prosecute.
Early intervention makes a huge difference. Sometimes we can negotiate a resolution that avoids criminal charges entirely. Sometimes we can get charges reduced. Sometimes we have to go to trial and fight – and we’ve won cases that other attorneys said were unwinnable. That’s what we do.
We’re available 24/7 because federal investigations don’t run on a 9-to-5 schedule. When IRS-CI shows up at your business, you need a lawyer immediately. Our criminal defense attorneys have handled thousands of federal cases over the past 40+ years.
Federal payroll tax cases are not something you handle on your own. You need experienced federal criminal defense attorneys who will fight for you – attorneys who care about YOUR outcome, not their relationship with the prosecutors. That’s Spodek Law Group.