For Immediate Release:

Saturday, August 24, 2013

The I.R.S. recently published a fact sheet ?Tips for Companies that Outsource Payroll Duties? because of situations like this:

Payroll Company Owner Sentenced in Tax Case
On June 21, 2013, in Cincinnati, Ohio, Robert Sacco was sentenced to 78 months in prison, three years of supervised release and ordered to pay $26,729,098 in restitution jointly with another defendant. Sacco pleaded guilty on October 26, 2012 to one count each of conspiracy to defraud the United States by impeding the IRS, money laundering and tax evasion.  According to court documents, Sacco was the owner and chairman of the board of Paysource, a Dayton-based professional employer organization which provided services that enabled business owners to cost-effectively outsource the management of human resources, employee benefits, payroll and workers? compensation and other strategic services. Sacco and others conspired to avoid the payment of federal employment taxes owed by Paysource for 2007 through 2009 and concealed from the IRS the legitimate tax liabilities the company owed. Sacco directed co-conspirators to prepare fraudulent IRS forms claiming that the wages paid by the company and the resulting tax liabilities were significantly lower than the wages the company actually paid.
It is very likely that the customers/employers of Paysource will now have to repay any taxes that Mr. Sacco stole, resulting in his clients having to repay over 26 Million dollars they already paid once!
The vast majority of payroll providers do a fantastic job, and I have had clients say ?we hire a payroll company so I do not have to worry about payroll compliance.? Many companies assume that if they outsource their payroll, the liability and responsibility for compliance now resides with the payroll service provider through the contract. This is not correct. The employer remains liable for all compliance and payment of federal taxes in a timely manner. Failure to be in compliance will result in fines and penalties imposed on the employer not the payroll service provider. The payroll provider may be criminally prosecuted but the payroll fines will revert to the employers.
In summary here is what the I.R.S. ?Tips for Employers Who Outsource Payroll Duties? recommends.

1. Enroll in the Electronic Funds Tax Payment System (EFTPS). If you give your login information to your provider to make your tax deposits you can always go into the system and check to make sure that your deposits were made on time.
2. Do Not change the contact address for notices and correspondence from the I.R.S. to the address of the payroll provider. This will assure that the employer gets all I.R.S. correspondence.
3. Contact the I.R.S. immediately if you receive any correspondence.

I would like to add one more not listed on the I.R.S. fact sheet.

1. Ask you payroll service provider if they are bonded. A bond is an insurance policy that would allow an employer to make a claim if the provider failed to meet their fiduciary responsibilities. The bond should be of a significant dollar value and the contract should stipulate that the provider must provide annual proof of coverage. Ask your legal counsel for the specific language.

In the end it is always the employer who withholds the trust fund money (employee portion FICA and federal income taxes) that is liable.
To read the I.R.S. fact sheet go to this link. http://www.irs.gov/uac/Newsroom/Tips-for-Employers-Who-Outsource-Payroll-Duties
IRS CIRCULAR 230 ? DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full ?covered opinion?. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.