By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m106 c0103
Risk of criminal penalties for noncompliance with payroll taxes. Compliance with federal payroll tax reporting is hard enough. It is even more difficult for church treasurers who must be familiar with the special tax rules that apply to churches and church staff. Many have wondered if they could face criminal penalties for inadvertent noncompliance. Recently released IRS statistics suggest that church leaders need not be concerned about criminal penalties, for two reasons. First, criminal penalties are assessed by the IRS only if there is an attempt to evade withholding or payment of payroll taxes. Innocent mistakes made while attempting to comply with the law will not result in criminal penalties. Second, the IRS pursues criminal prosecution against a very small number of employers for noncompliance with payroll tax reporting. Out of some 25 million employers that filed Form 941 (Employer's Quarterly Tax Return) in fiscal year 2002, the IRS launched criminal investigations against only 85 of them. These investigations resulted in 54 prosecutions and 36 convictions. While the IRS boasts that this is greater than a 50% conviction rate (which is true), it must also be noted that only about 1 in 500,000 employers were prosecuted for criminal violation of the payroll reporting rules.