Specializing in IRS and NYS Tax Representation. Workers Compensation Audits, Payroll, Sales and Income Tax representation for Businesses, Individuals, Restaurants and Construction Companies. Civil and Criminal Workers Comp Audit representation includes: NYSIF Examinations, Premium Disputes, Employee Misclassification, Underreporting, Unreported Income, and Failure to Keep Accurate Payroll Records.
The former Chief Financial Officer pleaded guilty to willfully failing to pay over employment taxes to the Internal Revenue Service (IRS), announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division.
According to court documents, from 2010 to 2016, John Herzer was the CFO of AXO Staff Leasing (AXO), a professional employer organization. Herzer handled all of the company’s finances and had final authority over which creditors to pay and when to pay them. Herzer was also responsible for collecting and paying to the IRS taxes withheld from AXO’s employees’ wages. Despite this obligation, Herzer did not pay to the IRS AXO’s employment tax withholdings and instead used more than $4.9 million of those funds for his own benefit including paying personal expenses and transferring millions of dollars to his own bank accounts. In total, Herzer’s fraudulent conduct caused a tax loss to the IRS of more than $13 million.
A sentencing date has not yet been scheduled. Herzer faces a statutory maximum sentence of five years imprisonment, as well as a term of supervised release, restitution and monetary penalties.
Principal Deputy Assistant Attorney General Zuckerman commended special agents of IRS Criminal Investigation, who conducted the investigation, and Tax Division Trial Attorneys Robert Kemins and David Zisserson, who prosecuted the case. Principal Deputy Assistant Attorney General Zuckerman also thanked the U.S. Attorney’s Office for the Western District of Texas (Austin Division) for their substantial assistance.
Selig & Associates Aggressive New York City Tax AdvocatesWe Solve IRS and New York State Tax Problems, Guaranteed. Specializing in Income, Payroll and Sales Tax Issues. IRS Audits, Sales Tax Audits, Unpaid Payroll Taxes, Trust Fund Penalties, Criminal Tax Investigations and Tax Crimes, Installment Agreements and Payment Plans, Offers in Compromise and most other Tax Matters. For a Legally Privileged Consultation with a Federal Tax Practitioner and Licensed Attorney Call (212) 974-3435 or Contact Us Online.
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To schedule a legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call Selig & Associates directly (212) 974-3435.
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We practice before the Internal Revenue Service (“IRS”) the New York State Department of Taxation and Finance (“NYS”) the Department of Justice Tax Division (“DOJ”) and the Defense Office of Hearings and Appeals (“DOHA”).
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We solve Tax Problems including Tax Crimes, Tax Evasion, Failure to File a Tax Return and Criminal Non-Filing, Filing False Tax Returns, Installment Agreements, Partial Payment Agreements, Audits, Sales Tax Controversies, Wage Garnishments, Bank Levies, Seizure of Property, Innocent Spouse Relief, Trust Fund Recovery Penalty, Payroll Taxes, Statute of Limitations, Offer in Compromise ("OIC"), Administrative Appeals, Collection Due Process Hearings ("CDP") and most other tax matters.
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Advice on Unreported Tip Income and IRC Sections 7436 and 3121(q)
This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent. ISSUES 1. Whether cash amounts distributed to individuals from “tip boxes” are properly classified as tips under the Internal Revenue Code (Code) and subject to Federal Insurance Contributions Act (FICA) tax. 2. Whether cash amounts distributed to individuals from “tip boxes” are subject to notice and demand procedures under section 3121(q)1 or whether taxes on cash amounts should be included in Table 3 of Letter 3523, Notice of Employment Tax Determination under IRC § 7436.2 1 All section references in this memo are to the Internal Revenue Code of 1986 unless otherwise noted.2 Letter 3523, formerly titled “Notice of Determination of Worker Classification” has been renamed “Notice of Employment Tax Determination under IRC § 7436”. For purposes of this memo, we refer to the notice required to be issued to a taxpayer pursuant to section 7436 as “Letter 3523.”
Third Party Communication: None Date of Communication: Not Applicable
POSTN-129181-17 2
CONCLUSIONS 1. The cash amounts distributed to individuals from “tip boxes” are properly classified as tips pursuant to rules stated in Rev. Rul. 2012-183 and are wages subject to FICA tax. 2. The cash amounts distributed to individuals from “tip boxes” are tips and thus subject to notice and demand procedures under section 3121(q). FACTS Taxpayer engages individuals to perform services at the Taxpayer’s request and on the Taxpayer’s premises. Taxpayer treats the individuals as volunteers and does not directly pay the individuals any form of compensation or benefits for their services. Taxpayer acknowledges, however, that the individuals receive cash payments from amounts contributed by customers. The cash amounts are deposited by customers in “tip boxes” placed by Taxpayer in the vicinity of where the individuals perform services. Taxpayer places the “tip boxes” to encourage customers to contribute cash amounts to the individuals. Taxpayer does not require customers to make cash contributions and customers have discretion on how much cash to contribute (including zero contribution). The amount of cash in the “tip boxes” is distributed at the end of each shift. Individuals who performed services during a shift determine how to allocate the tip box amount between all of the individuals who performed services during that shift. Although Taxpayer is aware that customers place cash in the “tip boxes” and that the individuals working each shift distribute the cash among themselves, Taxpayer does not have a system in place for individuals to provide written statements reporting the cash amounts received to Taxpayer, and there is no evidence that Taxpayer has knowledge of the specific amount of cash received by each individual. Taxpayer does not issue Forms W-2, Wage and Tax Statement, to the individuals and has not included any wages or taxes in connection with their services on Form 941, Employer's QUARTERLY Federal Tax Return. During the course of an audit, the Service determines that Taxpayer has the right to direct and control the individuals as they perform services and that the individuals should be classified as employees of Taxpayer for purposes of FICA taxes. In addition to its worker classification determination, the Service proposes a FICA tax liability related solely to the unreported cash amount received by the individuals.4 The Service issues Letter 3523 to Taxpayer at the conclusion of the audit, notifying Taxpayer of its worker classification determination. 3 2012-26 I.R.B. 1032.4 For purposes of simplicity, this memo does not address any determination made by the Service with regard to Section 530 of the Revenue Act of 1978 or any potential Federal Unemployment Tax Act (FUTA) or income tax withholding liability.
POSTN-129181-17 3
Your inquiry relates to whether the cash amounts are “tips” subject to notice and demand procedures under section 3121(q) or whether tax on the tip box amounts should be included in Table 3 of Letter 3523, which lists the proper amount of employment tax, additions to tax, and penalties with respect to payments made to individuals who are being reclassified as employees. LAW AND ANALYSIS Sections 3101 and 3111 impose FICA taxes on employees and employers, respectively. FICA taxes are imposed on “wages” as that term is defined in section 3121(a). Section 3121(a) defines wages as all remuneration for employment with certain specific exceptions. Section 3121(a)(12)(A) excludes “tips” from the definition of wages if paid in any medium other than cash. Section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee’s employment by an employer, unless the amount of the cash tips is $20 or more. Section 3102(a) requires employers to deduct from wages and pay over the employee portion of the FICA tax. However, section 3102(c)(1) provides a special rule applicable to tips. It states, in relevant part, the employer’s obligation to deduct employee FICA tax from tips which constitute wages is applicable only to such tips as are included in a written statement furnished by the employee to the employer pursuant to section 6053(a), and only to the extent that collection can be made by the employer by deducting the amount of the tax from wages of the employee (excluding tips) as are under control of the employer, or from other funds made available by the employee for this purpose. Under section 3121(q), tips received by an employee in the course of the employee’s employment are considered remuneration for that employment (and are deemed to have been paid by the employer for purposes of the employer portion of the FICA taxes imposed by sections 3111(a) and (b)). For purposes of determining the timing of the employer’s FICA tax liability, the remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section 6053(a). However, if the employee did not furnish the statement, or if the statement furnished was inaccurate or incomplete, the remuneration is deemed to be paid on the date on which the Service issues a notice and demand under section 3121(q) for the taxes to the employer. The characterization of a payment as a “tip” by the employer is not determinative for purposes of determining when the employer portion of FICA arises. Section 31.3121(a)-(1)(c) of the Employment Tax Regulations provides that the name by which the remuneration for services is designated is immaterial. Thus, designating a payment as a tip is irrelevant if the amount is paid as compensation by an employer for services
POSTN-129181-17 4 performed by its employee. For example, Rev. Rul. 59-2525 holds that the payment by a customer of a fixed charge imposed by a banquet hall that is then distributed by the banquet hall to the employees who render services (e.g., waiter, busser, and bartender) is a service charge and not a tip. To the extent any portion of a service charge paid by a customer is distributed to an employee, it is wages for FICA tax purposes at the time it is distributed. Tips are not defined in the Code or regulations; however, published guidance addresses how to determine whether a payment is a tip. Rev. Rul. 2012-18 reaffirms the factors first stated in Rev. Rul. 59-252 which are used to determine whether payments constitute tips. Rev. Rul. 2012-18 provides that the absence of any of the following factors creates a doubt as to whether a payment is a tip: 1) payment must be made free from compulsion; 2) the customer must have the unrestricted right to determine the amount; 3) the payment should not be the subject of negotiation or dictated by employer policy; and 4) generally, the customer has the right to determine who receives the payment. Under the facts presented, the four factors set forth in Rev. Rul. 2012-18 have been satisfied. The fact that the cash contributions are collected by the individuals who work during the shift and pooled for purposes of distribution among them satisfies the fourth factor. The customers generally have the right to determine who receives the payment when the tipped amounts are pooled and the individuals working each shift distribute the cash among themselves. Once the amounts have been properly identified and characterized as tips, the timing of the FICA rules for employer tax liability purposes can be applied. Because the tips have not been reported to the taxpayer pursuant to section 6053(a), they are deemed to be paid on the date on which the Service issues a notice and demand under section 3121(q) for the taxes to the taxpayer. Thus, the tips are not subject to the employer share of FICA tax until the Service issues a notice and demand under section 3121(q). The Service should issue Letter 3523 to Taxpayer based on the worker classification determination, and should identify in Table 1 the individuals the Service determined should be reclassified as employees. However, tax on the cash amounts received by the individuals should not be included in Table 3 of Letter 3523 because the tips are deemed paid only after the Service issues a notice and demand under section 3121(q). Thus, the only issue that would be subject to Tax Court jurisdiction would be the proper worker classification of the individuals listed in Table 1. If an amount properly characterized by an employer as a tip was reported by the employee to the employer in accordance with section 6053(a), it would be deemed to be 5 1959-2 C.B. 215.
Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney James P. Kennedy, Jr. announced today that Dorian Wills, 52, of Buffalo, NY, pleaded guilty to tax evasion before U.S. District Judge Elizabeth A. Wolford. The charge carries a maximum penalty of five years in prison and a $250,000 fine.
According to documents and information provided to the court, between April 2010 and October 2013, the defendant operated a debt collection business under various names, including Heritage Capital Services LLC; Performance Payment Processing LLC; Performance Payment Service LLC; Pinnacle Payment Service LLC; and Velocity Payment Solutions LLC. Wills resided in the Western District of New York but spent significant time in Cleveland, Ohio, and Atlanta, Georgia, where the debt collection companies were located. From approximately November 2010 through approximately October 2013, the defendant operated a business called Freestar World LLC, through which he did work for the debt collection companies.
The debt collection companies engaged in illegal debt collection practices such as making threatening and harassing phone calls, and collecting on debt that did not exist or debt to which the debt collection companies did not have title. To avoid detection by state and federal law enforcement authorities, Willssolicited two individuals to assist him with his businesses.
The defendant had these individuals incorporate several debt collection companies in Georgia and Ohio, open dozens of bank accounts in the names of the debt collection companies, and submit applications for merchant accounts in the names of the debt collection companies.
Between 2010 and 2013, none of the debt collection companies filed a tax return. In addition, Willsfailed to file his 2011 and 2013 personal income tax returns, despite some of the debt collection companies earning approximately $4,000,000 in gross receipts.
For the tax year 2012, the defendant filed a personal income tax return but the return did not include income information from any businesses, some of which earned nearly $5,000,000 in gross receipts in 2012, except for Freestar.
As a result of unreported income and the unpaid 2012 taxes, the defendant owes $1,209,537.88 in federal income taxes for tax years 2011 through 2013.
Previously, Willsand the debt collection companies were the subject of a civil investigation by the Federal Trade Commission, with the defendant and the FTC stipulating to a final order for permanent injunction on August 8, 2014.
U.S. District Judge Elizabeth A. Wolford scheduled sentencing for Aug. 23, 2018. Willsfaces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution and monetary penalties.
Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Kennedy thanked special agents of IRS Criminal Investigation, who conducted the investigation, AUSA Marie P. Grisanti, and Tax Division Trial Attorneys Jason M. Scheff and Thomas F. Koelbl, who are prosecuting the case.
Personal Service
We meet with our Clients personally.
Kept Informed
We provide our Clients with regular updates and status reports.
Attention to Detail
We return telephone calls and answer emails.
Confidential
To schedule a legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call Selig & Associates directly (212) 974-3435.
Professional
We practice before the Internal Revenue Service (“IRS”) the New York State Department of Taxation and Finance (“NYS”) the Department of Justice Tax Division (“DOJ”) and the Defense Office of Hearings and Appeals (“DOHA”).
Effective
We solve Tax Problems including Tax Crimes, Tax Evasion, Failure to File a Tax Return and Criminal Non-Filing, Filing False Tax Returns, Installment Agreements, Partial Payment Agreements, Audits, Sales Tax Controversies, Wage Garnishments, Bank Levies, Seizure of Property, Innocent Spouse Relief, Trust Fund Recovery Penalty, Payroll Taxes, Statute of Limitations, Offer in Compromise ("OIC"), Administrative Appeals, Collection Due Process Hearings ("CDP") and most other tax matters.
The IRS is ramping up collections and taxpayer’s are feeling the squeeze, says David Selig of Selig & Associates. IRS audits have become more contentious, collections have become more invasive and punishments for breaking the rules are bordering upon cruel and unusual.
And if that wasn’t enough, the IRS just changed its first-time penalty abatement policy (and its a change is for the worse). Under the new rules taxpayers are no longer allowed to combine multiple liabilities and penalty abatements are limited to just one-year, and only one tax type.
The policy change is largely due to perceived abuses. For example, in 2016 David Selig and Bradley Dorin of Selig & Associates gained national attention when they represented an institutional stock trader and successfully discharged ONE HUNDRED AND TWENTY ONE MILLION DOLLARS (“$121,000,000”) in tax and penalty liabilities.
About Selig & Associates: Selig & Associates is a boutique tax firm with offices in New York City. The principals David Selig and Bradley Dorin have worked together for the past 10-years and are as different as day and night. Selig is a 6”2 former Marine with a penchant for heavily starched shirts, Versace ties, gold cufflinks and spit shined shoes. Conversely, Dorin prefers casual clothing and comfortable shoes, a near-vegetarian diet and the melodious stylings of the Grateful Dead.
Selig & Associates is one of New York City’s best-kept secrets because Selig and Dorin specialize in settling tax cases without going to Court. In a nutshell, they’re fixers. Or to paraphrase Dickens, they employ every trick ingenuity can devise.
Having saved their clients over $300,000,000 in federal and state taxes, it’s obvious that Selig and Dorin aren’t your typical accountant attorney duo. Our clients only see the results says Selig. They don’t see the hours of preparation that takes place behind the scenes.
Selig is a Federal Tax Practitioner and Public Adjuster and Dorin is a tax attorney with over 33 years experience. The firm is hidden away on the 16thfloor of a nondescript building in the shadow of Seventh Avenue.
We fly beneath the radar says Attorney Dorin. Our clients want anonymity and we do our best to keep them out of the courtroom and out of prison.
Selig & Associates represents professionals, business-owners and outlaws of every stripe. And during the entirety of their 10-year association not a single client has been convicted of a tax related felony. We’re extremely selective about the cases we take, says Selig. For example, I favor acrimonious contests with high stakes while Dorin prefers to negotiate terms and conditions. To be continued . . .
For people with
serious tax problems, Selig & Associates has become New York City’s go-to
tax firm. Selig & Associates is a micro boutique that specializes in
resolving serious tax problems without having to go to Court.
In 2008 David
Selig and Bradley Dorin met in the United States Tax Court have been working
together on a case-by-case basis ever since. They practice before the IRS and
State and spend much of their time with Government Agents and Attorneys in
cramped windowless offices. They defend the indefensible and resolve the
irresolvable by negotiating directly with the government and through back
channels. Selig is a
Federal Tax Practitioner and Public Adjuster and Dorin is an Attorney with over
30 years of experience. Collectively they have discharged over $300,000,000 in
federal and state tax liabilities and none of their clients have been convicted
of a tax related felony. Going to court is a gamble that can cost you your
freedom, says Attorney Dorin. We knock the heart out of criminal tax cases
before they pass the point of no return by taking advantage of every
exploitable opportunity and by honoring our agreements, says Selig. We know
all of our clients personally, and for some reason we seem to attract an
immoderate amount of restaurateurs, builders, outlaws
and entrepreneurs. It’s largely due to the complexity of our tax laws,
says Attorney Dorin. And because Selig
is an early bird and Dorin is a night owl, they’re accessible to their clients
24 hours a day 7 days a week. Selig and Dorin keep their clients out of court,
out of the headlines, and most importantly, they keep their clients out of
prison. In addition to
their tax practice, Selig and Dorin settle residential and commercial
property insurance claims, including business interruption, burglary, fire,
windstorm and water damage. Practicing before the IRS gives us an unfair
advantage, says Selig. Insurance companies like to receive premiums, but they
surely don’t like to pay claims, says Attorney Dorin. And in the heat of the
moment, people become frustrated and frequently accept less than their claim is
actually worth, . . . a lot less! Compared to the IRS these guys are
lightweights, laughs Selig. Dorin appears to be more reserved. Having mastered
the proverbial good cop bad cop routine, one thing is clear, Selig and Dorin
love what they do.
Will a Sexual Harassment Claim Destroy Your Business?You need to protect yourself against sexual harassment and hostile work environment claims. Thankfully Selig & Associates provides legal, insurance and other asset protection strategies for business-owners and medical service providers. By implementing an effective sexual harassment strategy today, you can protect your reputation, your business, and your assets tomorrow. We solve problems before they happen. *To schedule a consultation or a comprehensive evaluation of your existing plan call Selig & Associates directly (212) 974-3435
Admittedly, Harvey
Weinstein’s caricature could have adorned a German propaganda poster circa
1938.But looks can be deceiving and in
reality Harvey Weinstein is an extremely compassionate human being.
In fact, some of these same parasites
have been extorting money out of Harvey for years. He reminds me of an innocent
guy who pleads guilty to crime he didn’t commit, says Selig. His story reads
like a Greek tragedy. He was terribly embarrassed and was coerced into paying so his wife wouldn’t find out.
In a
lot of ways Harvey’s situation reminds me of a Tax Case. For example, when the
IRS makes a false allegation against a taxpayer, most people will think he's guilty. Even family members will have their doubts. Where there's smoke there's fire. And when the pressure is on, some people become so scared that they wind up doing things that they wouldn’t normally dream
of doing. They agree to things that aren’t true, and they try to conceal their tax
problems from their families and business partners. The IRS knows this is
happening, but they don’t care because “it’s all about the Benjamins”.
The same can be said about false sexual harassment and hostile workplace claims. In fact, most business-owners don’t even defend themselves against these false allegations. And when the lawyers are finally finished with them -
the business-owner is left humiliated, vilified, and financially ruined.
In my
opinion, Harvey Weinstein shouldn't have apologized because he
didn't do anything to apologize for. And let me go on the record as saying that I don’t
like the way Harvey Weinstein is being treated because I’m not into schadenfreude,
says Selig.
And while we’re at it, I don’t like it when the IRS takes advantage
taxpayers either. When Selig &
Associates represents someone before the IRS we fight like hell, and we make it
our business to challenge every falsehood and to quibble over every dollar. And
when one of our clients is accused of a tax crime, they don’t confess (even if they’re guilty).
Winners don't confess, and they certainly don’t apologize. You need to protect yourself against sexual harassment and hostile work environment claims. Selig & Associates provides legal, insurance and other asset protection strategies for business-owners and medical service providers. By implementing an effective sexual harassment strategy today, you can protect your reputation, your business, and your assets tomorrow. We solve problems before they happen. *To schedule a consultation or a comprehensive evaluation of your existing plan call Selig & Associates directly (212) 974-3435
Selig & Associates, Successful Tax Advocacy
& LitigationWe practice before the
Internal Revenue Service, the New York State Department of Taxation and
Finance, the Department of Justice Tax Division, the New Jersey Division of
Taxation, the Connecticut Department of Revenue Services, the District of
Columbia Office of Tax and Revenue, the Pennsylvania Department of Revenue, the
Georgia Department of Revenue, the California Franchise Tax Board and the
Defense Office of Hearings and Appeals (DOHA).
Selig & Associates, Proven Tax RepresentationServices
include: Tax Crimes,Tax Evasion, Failure to
File a Tax Return, Criminal Non-Filing, False Returns,Installment
Agreements,Partial Payment Agreements,Sales
Tax Audits, Sales Tax Controversies,Wage
Garnishments, Bank Levies, Seizure of Real Property,Innocent
Spouse Relief, Trust Fund Recovery Penalty, Payroll Taxes, Statute of
Limitations, Offer in Compromise,Administrative
Appeals,Collection Due Process Hearings and most other
tax matters.
Selig & Associates, Guaranteed Professional
Service We meet with our clients personally. We return
telephone calls, answer emails and provide our clients with regular updates and
status reports.
