You have made your business a success. So much so, that you have been able to hire people to take over the boring stuff, such as writing checks and processing payroll tax returns. What can go wrong with this scenario?
The Scenario
The trusted accountant embezzles some money. Small amounts at first, but his or her perceived needs continue to grow so they continue the embezzlement game. To keep in the game, they need to provide reconciliations to show that all the money flowing through the bank accounts is accounted for. No problem. Let’s just continue to record payroll tax deposits in amounts equal to amounts stolen. But if we file the payroll tax returns, the IRS will start sending notices saying, “where is the cash?”. Problem solved, lets just not file the returns. After all, the IRS will take forever to follow up on the missing returns, especially if I mark the last one “final”.
The Result
The result is that the IRS eventually does follow up and the missing payroll deposits amount to the hundreds of thousands. The company will most likely not have the ability to recover and go out of business. The IRS will then access a penalty equal to 100% of the employee withholdings and social security taxes on the owner who is now back to being an employee of someone else.
The Solution
There is a new option in town to avoid this kind of disaster. Different tax representation firms use different names, but it essentially involves software regularly querying the IRS databases and reporting to their client business owners when the payroll tax returns have been filed and the amounts of payroll deposits actually paid. This allows the business owner to have a 3rd party backdoor check on his trusted employees.
If you have any questions about how this service works, just give me a call at (352) 317-5692 or email jim@taxrepgainesville.com.
