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Employers Beware! Payroll Tax Violations Come With A Very Heavy Price

By Caroline D. Ciraolo
The Federal Lawyer, Federal Bar Association
May/June 2021 Issue

In fiscal year 2020, the Internal Revenue Service (IRS) was responsible for more than 96 percent of the gross revenue received on behalf of the United States. Employment taxes, including federal income tax actually withheld and paid over to the IRS, constitute over 70% of all revenue collected by the IRS. Despite our strong system of voluntary compliance, the IRS estimates the annual gross tax gap—“the amount of true tax liability that is not paid voluntarily and timely”—to be $441 billion.* Of this amount, $81 billion is attributable to employment tax.

Therefore, it comes as no surprise that civil and criminal employment tax enforcement is among the highest priorities of the IRS and the Tax Division of the U.S. Department of Justice (DOJ). The IRS and DOJ have increased civil and criminal employment tax enforcement since 2015 in an effort to educate, modify the behavior of, and hold accountable those employers who intentionally fail to comply with their employment tax obligations.


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* This article was drafted prior to IRS Commissioner Rettig’s testimony before the U.S. Senate Finance Committee on April 13, 2021, in which he estimated that the tax gap has grown substantially since the last official estimate of $441 billion annual average from 2011 to 2013. Commissioner Rettig referred to new sources of wealth, including foreign source income and crypto-currency transactions, and stated: “If you add those in, I think it would not be outlandish, that the actual tax gap could approach, and possibly exceed $1 trillion.”