Saturday, October 20, 2012

The owner of several temporary staffing agencies with headquarters in North Carolina has been sentenced to 12 years in prison for his failure to remit 40 million dollars in payroll taxes collected from his employees http://www.justice.gov/opa/pr/2012/September/12-tax-1079.html). Apart from the anger we feel concerning someone who takes advantage of employees by withholding federal income tax and employment taxes and then uses the money for personal purposes, the larger tragedy may yet unfold.

According to I.R.C. 3401 (1) (a) it is possible the I.R.S. will go back to the employers for whom the temporary employees worked to collect the unpaid taxes. That's right; the employers who paid the temporary employment company, assuming their liability ended with the check clearing the bank may now have to pay a second time the tax liability that was not remitted by the temporary staffing company.

The I.R.S. will attempt to collect the monies from the temporary staffing company by liquidating all assets and estimating what balance if any is not recoverable from the company. Following this evaluation a decision will be made regarding collecting the balance from the companies for whom the temporary staffing employees worked.  This unseen liability will not be known by the companies until they receive notice from the I.R.S. that they now have an unpaid payroll tax liability. This can be a very rude awakening for businesses that are not aware of the potential risk.

If you utilize employees from a temporary staffing company here are some recommendations.

1. Only use companies that are reputable and have references.

2. Ask if the company is bonded.

3. Verify the contact allows the company to make a claim against the bond if the temporary staffing company fails to meet its fiduciary responsibility.

If you have questions regarding payroll tax liabilities contact gary@illuminaregroupinc.com.

Gary Garner, EA

Illuminare Group Inc.