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13 June 2017

No Soup for You! Seinfeld Icon in Serious Payroll Tax Trouble

No Soup for You! Seinfeld Icon in Serious Payroll Tax Trouble

Remember the “Soup Nazi” from the Seinfeld television show? Thanks to its popularity on the show, that small soup shop turned into Soupman, Inc. and its CFO, Robert N. Bertrand, was recently indicted on 20 counts of failure to pay both payroll and federal income taxes. You could say he’s in very hot…soup? His story is a cautionary tale of what can happen when you fail to pay or try to avoid (using “independent contractors” who are actually employees or paying non-reported “wages”) payroll taxes.

Bertrand is being investigated for paying employees on the side in unreported cash amounts and compensating certain employees in large, unreported stock awards.

“The IRS calls this trust fund money, so if an employer fails to hand it over to the IRS, it is like theft,” explains Robert W. Wood, a tax lawyer and Forbes.com contributor. “The IRS tends to push hard in such situations, especially when payroll tax failures reflect a pattern. The IRS can close a business, and sometimes even take court action to make it doubly clear that the IRS does not want a repeat performance.”

Bertrand’s transgressions in this case are believed to total $2.85 million. You may never be liable  for such a large amount, but any failure to pay payroll taxes—even late payments—can hold huge consequences to everyone involved. Potentially every executive responsible for payroll could be indicted. What’s more, an evasion like this can also result “in the loss of future Social Security and Medicare benefits for the employees,” James D. Robnett, a special agent in charge at the Internal Revenue Service’s criminal division in New York, told The New York Times.

This issue is newly evolving in tax courts. One of the most recent rulings (Byrne v. United States) concluded that a responsible person will be found liable if the government can demonstrate the person (1) had actual knowledge that the trust-fund taxes were not paid and the ability to pay the taxes, or (2) recklessly disregarded known risks that the trust-fund taxes were not paid. Innocence here is tough to prove and, says Woods, it’s likely Bertrand won’t be able to do so.

If you have any questions or concerns about trust fund money as it relates to payroll taxes, feel free to contact us.

Image Copyright: tescha555 / 123RF Stock Photo

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