Never borrow withheld taxes. A little story out of Cedar Rapids this morning has a big lesson for business owners: Former owner of Cedar Rapids security firm sentenced on tax charge (Dar Danielson, Radio Iowa). In its entirety:
A former eastern Iowa business owner will spend over two years in prison on a tax violation. Forty-six-year-old Eric Holub of Clarence pled guilty to failing to forward withholding taxes he took out of his employee’s checks to the IRS.
Holub admitted to failing to send $460,000 in withholding taxes from January 2008 to December of 2009 for Premier Security, a private business he owned in Cedar Rapids. Holub was sentenced to 30 months in prison and three years supervised release.
Two paragraphs – just enough to tell an alert reader a story of financial catastrophe. Court documents tell a bit more of the defendant’s story. He had to use a public defender, so he’s broke. He’s married with six kids, three under 10. Even though he’s going away for 2 1/2 years, he still has to pay the IRS $438,426.17 somehow. Small wonder he’s being treated for depression.
What we don’t learn is why he didn’t pay over his payroll taxes. I handled payroll in the early days of our firm, and there were times when it sure would have been handy to not remit the payroll taxes right away, given other pressing cash needs. Maybe cash was tight, and it seemed like a good way to pay vendors. Maybe he figured he’d get caught up someday, but when the IRS didn’t react immediately, catching up seemed like it wasn’t so important.
In any case, it’s a huge mistake to not remit payroll taxes on time. Penalties start running up immediately, and bankruptcy or using a corporation will not make the liability go away. And more and more, the government isn’t satisfied the with getting the cash; they want jail time too. 30 months plus principal, interest and penalties for “borrowing” payroll taxes makes car title loans look like a bargain.
Iowa R.V. Owners come in from the cold. Iowa’s amnesty for R.V. owners who had skipped Iowa registration fees by registering their vehicles in Montana ended yesterday with “dozens” of settlements and “just over $100,000” in fees collected, reports the Des Moines Register. The idea that you could use a Montana LLC to skip registration fees in Iowa never seemed remotely plausible to me, but people will believe just about anything if it might save them a few bucks.
Arnold Kling, The Obamacare Suits/Geeks Divide:
In response to the WaPo story, I wrote a letter to the editor, which they published (mine is the third letter on this page). This is not a technical screw-up, and it will not be fixed by technical people. It is an organizational screw-up. And until that is recognized, it probably will get worse. I write,
In my experience, communication failures between technical staff and management reflect an atmosphere of fear and lack of mutual respect.
I call this the suits-geeks divide. I saw it during the financial crisis, when it was evident that many mortgage credit-risk geeks warned of problems at their firms but management went out of the way not to listen. Merrill Lynch and Freddie Mac were particularly well-documented cases.
It’s starting to look like a delay of the individual mandate — the key tax provision that holds Obamacare together — is inevitable. It may take some time yet for the administration to swallow this bitter pill, just after they shut down the government rather than accept a GOP-sponsored delay.
Megan McArdle, Why Obamacare Is Like Three Mile Island. “All the pieces are interdependent, so a failure in one part is apt to cascade throughout the market. This is not a system where you want to start pulling out one piece to see how well the rest can get along without it.”
Des Moines Register, Lawmakers are warned of unfunded liabilities in pensions:
Iowa’s public employee pension funds face billions of dollars in unfunded liabilities, and tough scrutiny is needed to ensure taxpayers and public employees are protected, state lawmakers were told Wednesday.
Public defined benefit plans are lies. The only question is whether the beneficiaries are being lied to with promises that won’t be kept, or the taxpayers are being lied to by politicians hiding the real cost of government payroll. Probably both.
Kay Bell, IRS seeks volunteers for tax-exempt advisory panel. I bet they get some Tea Party applicants.
William Gale, The Illogic of the McConnell Debt Limit Rule (TaxVox)
Dan Mitchell, Welfare Fraud Is another Reason to Replace the IRS with a Flat Tax. More on the TIGTA EITC report we mentioned yesterday.
William McBride, Ripe for Reform: Improper EITC Payments Exceed $11 Billion per Year (Tax Policy Blog)
Cara Griffith, In Defense of State Treasurers (Tax Analysts Blog)