Benjamin Franklin couldn’t have known that his now infamous words in a casual letter to a friend in 1789 would still carry weight centuries later: “…but, in this world, nothing can be said to be certain, except death and taxes.” Business owners should know that better than anyone.
Employers are responsible for withholding their employee’s share of taxes and remitting both the employee and employer portions to the IRS. Business owners who fail to pay employment taxes can face serious trouble, including interest charges, late fees, fines up to $10,000, and up to five years in prison. Additionally, business owners must make restitution for unpaid taxes.
Defendant Donna Fecondo experienced this firsthand. Fecondo became the President and sole owner of her family’s business, a mushroom farm in Delaware County, Pennsylvania, after the deaths of her grandfather and uncle. In August 2010, Fecondo took on the responsibility of running payroll, which included collecting employment taxes on behalf of employees and filing them with the IRS. Additionally, because the business was considered a for-profit corporation, Fecondo was responsible for filing corporate tax returns.
Failure to Turn Over Withheld Taxes
Although Fecondo paid employees weekly and withheld taxes from their paychecks, she did not remit the withheld taxes to the IRS. Operating a mushroom farm, an agricultural business, required Fecondo to file an “Employer’s Annual Federal Tax Return for Agricultural Employees” (IRS Form 943). While most business owners are familiar with IRS Form 941, Form 943 is specifically for agricultural employers who pay wages to farmworkers, although both forms are used to report employment taxes. Additionally, because the farm was a domestic for-profit business, Fecondo needed to file a “U.S. Corporation Income Tax Return” (IRS Form 1120).
Fecondo was late filing both forms—even after the IRS previously notified her that there was no record of her employment taxes or personal returns on file. She explained to the IRS special agent who interviewed her that she was experiencing personal and financial troubles. These included grieving the loss of her uncle while simultaneously going through a divorce.
Regardless of her extenuating life circumstances, the IRS agent and Fecondo agreed that she owed the government $599,159 in back employment taxes. Fecondo could have requested to file a special return for IRS Form 1120, which would have extended the annual deadline for filing the form; however, she did not do so.
The IRS did grant Fecondo an Offer in Compromise (OIC), which is a federal program that allows an individual to negotiate a payback amount for back taxes with the IRS. Part 2 in our blog series will explain this further. However, during the time Fecondo was making OIC payments to the IRS, she failed to pay employment taxes on filed returns. In the end, United States District Court for the Eastern District of Pennsylvania sentenced Fecondo to 46 months in prison and to pay restitution to the tune of $5 million.
Reach out to Kundra & Associates for Knowledgeable Legal Support
If you own and/or operate a business and are struggling with payroll and/or filing taxes, it’s best to consult a tax attorney who knows the intricacies of employment law. With three decades of experience in collaborating with the IRS and the Maryland Office of the Comptroller, Ms. Kundra is an understanding, insightful advisor and litigator for your personal tax situation. She also works with clients across the United States and abroad. So before you disclose anything to a government official, feel confident in knowing your options. Contact Kundra & Associates, P.C. first. Please call us at 301-750-9717 or schedule a consultation online to help resolve your situation.
