In yesterday's blog post, I discussed your responsibilities as an employer for payroll taxes, and what happens if you don't fulfill these responsibilities. The following District Court case illustrates what happens if your failure to fulfill your responsibilities is "willful."
William Crabbe was the owner/manager of Columbine Health Care, which provided nurses to health care facilities. These nurses were specifically stated to be employees of Columbine, For a while, Mr. Crabbe was intentionally kept in the dark about operations of his company, but in 1999, he became aware that an employee who was responsible for day-to-day operations was not paying payroll taxes.
Finally, in 2001, he started preparing 941s himself, but these reports and payments didn't reflect the nurse payroll tax liabilities, only the payroll taxes for corporate employees. So Crabbe misrepresented the number of nurses, and paid far less payroll tax than was actually due. This misrepresentation was the basis for the false filing convictions against Crabbe.
After the IRS opened a criminal investigation, Crabbe started including nurses as employees and accurately reflected C's tax liability. He was indicted for over 30 violations of federal criminal tax laws, was convicted by jury, sentenced to 37 months' imprisonment. A district court upheld the verdict against Crabbe, stating that his violations were "willful" and that he was the "responsible person" with decision-making authority.
Yesterday I mentioned that the terms "willful" and "responsible person" were defined specifically. A responsible party is someone in a position of responsibility within a company (an executive or a board member, for example). In this case, Mr. Crabbe as owner of the company, was definitely a responsible party. A willful violation means that the responsible party knew, must have known, or should have known the law and intentionally disregarded the law or was indifferent to it. The District Court concluded that Mr. Crabbe was responsible and that his violation was willful. Thus they upheld the conviction.
Read the entire summary: (United States v. William C. Crabbe; No. 08-1393, 10th Cir.)
If you are, or think you might be, a responsible party in your company, be sure you look carefully at what's going on with your payroll taxes, to be sure you are collecting money and making payments and reports on time.
Read more about payroll taxes, including your responsibilities for this business area.