If you're facing payroll tax fraud allegations in New York – you're looking at criminal charges that could destroy your business and land you in federal prison. The IRS treats payroll tax fraud as one of the most serious tax crimes, pursuing these cases with the same intensity they use for drug dealers and money launderers. Payroll tax fraud isn't just owing money.It involves deliberate falsification of employment tax returns, willful failure to pay taxes, or creating fake employee records – and the penaltys can doom your future.

Understanding Payroll Tax fraud Charges

What Constitutes payroll Tax Fraud

Payroll tax fraud ocurrs when someone willfully evades employment taxes through deception. according to IRS enforcement guidelines, fraud requires both underpayment AND affirmative acts demonstrating gross disregard of employment tax laws – not just mistakes. Common forms that doom businesses:

• Pyramiding - collecting taxes but not remitting them
• Paying employees cash "under the table"
• Filing false returns understating wages
• Misclassifying employees as contractors
• Using fake Social Security numbers
• Creating ghost employees for tax credits

The IRS charges interest on all penalties, and some accumulate monthly – creating a snowball efect that bankrupts businesses.

Criminal vs. civil Fraud

Criminal fraud means prison time.Under IRC § 7201, wilfully evading taxes is a felony:

• $100,000 fines for individuals ($500,000 for corporations)
• 5 years federal prison
• Prosecution costs
• Supervised release

Civil fraud penalties under IRC § 6663 add 75% to any underpayment – plus taxes owed and interest.Criminal charges require proof beyond resonable doubt; civil fraud needs only clear and convincing evidence.

Who Gets charged

Employer Payroll tax Fraud

Employers face the worst consequenses. Common schemes include underreporting workforce numbers, falsifying records, or pocketing withheld taxes – "pyramiding." The IRS targets employers who:

• File late or incomplete returns
• Have payment default history
• operate cash businesses
• Use multiple EINs
• Close and reopen repeatedly

Employee Payroll Tax fraud

Employees face charges for false W-4 forms claiming excessive exemptions.This creates a domino effect – incorrect employer FICA taxes drag them into investigations. Employee schemes triggering charges:

• Claiming false exempt status
• Using fake Social Security numbers
• Filing multiple W-4s with fake identities
• Not reporting cash wages

Tax Preparer Fraud

Preparers face penalties under IRC § 6695 from $60 to $635 per violation.Falsifying payroll returns brings criminal charges plus IRS disbarment. Recent prosecutions caught preparers:

• Creating fake expenses
• Altering wage reports
• Filing without authorization
• Stealing client payments

The Investigation Process

Warning Signs

The IRS builds cases quietly.Watch for:

• Unusual IRS information requests
• Former employees getting IRS letters
• Bank subpoenas
• Vendor IRS inquiries
• Multiple years questioned

Criminal Investigation Involvement

Cases move to Criminal Investigation with "firm indications" of fraud.Then:

• Special agents lead investigations
• Search warrants execute
• Computers and phones seized
• witnesses testify under oath
• Grand juries compel testimony

Investigations last years – you won't know the scope until charges filed.

Defense Strategies

Common Defenses

Not every tax problem equals fraud.Defenses negate willfulness:

Reasonable Cause

The IRS recognizes circumstances beyond control:

• Natural disasters
• Death/illness of key personnel
• Unavoidable absence
• Fire/theft of records

Good Faith Reliance

Reliance on professional advice negates willfulness – if you gave complete information.

Lack of Willfulness

Government must prove deliberate intent.Mistakes or negligence aren't fraud – though civil penalties apply.

Early Intervention Importance

Every day without representation weakens your position.Attorneys can:

• Contact agents before charges
• Present mitigating evidence
• Negotiate civil resolution
• Coordinate voluntary disclosure
• Protect employees from ambush

Consequences Beyond Criminal Penalties

Civil Penalties

Even avoiding prosecution, penalties destroy businesses:

• 75% fraud penalty
• Trust Fund Recovery Penalty (100% of unpaid taxes)
• Deposit penalties to 15%
• Filing penalties to 25%
• Daily compounding interest

Personal Liability

Trust Fund Recovery Penalty pierces corporate protection – responsible persons become personally liable.The IRS pursues anyone who:

• Directed tax payments
• Signed checks
• Paid creditors
• Set financial priorities

Your personal assets – home, cars, retirement – become collection targets.

Professional Consequences

Convictions end careers:

• License loss (CPA, attorney, medical)
• Government contract bans
• Banking exclusion
• Director prohibitions
• Deportation

Recent Enforcement Trends

The IRS's 2025 Dirty Dozen list highlights employment tax schemes.Recent targets:

• Fraudulent Employee Retention Credits
• Fake household employees
• False employment returns
• pandemic relief misuse

New analytics identify patterns across returns, catching previously undetected schemes.

Why You Need Specialized Defense

Payroll tax cases involve complex employment law, tax regulations, and criminal statutes.General attorneys lack needed expertise. Experienced attorneys understand:

• Technical compliance requirements
• Challenging IRS calculations
• Who makes charging decisions
• When disclosure prevents prosecution
• Negotiating civil resolutions

Your business, freedom, and family's security hang in the balance.Prosecutors specialize in employment tax – shouldn't your attorney?