Man Pleads Guilty to Payroll Tax Fraud Failed to Pay IRS $1 Million in Employment Taxes & Employee Withholdings

A computer software development company owner pleaded guilty today to failing to account for and pay over employment taxes withheld from his employees’ wages announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney R. Trent Shores for the Northern District of Oklahoma. 

According to documents and information provided to the Court, as the owner and operator of Tulsa-based Zealcon Corporation, Earenest J. Grayson Jr. was responsible for withholding, accounting for and paying over to the Internal Revenue Service (IRS) payroll taxes and withholdings due on the wages paid to Zealcon employees. For the period, January 2014 through June of 2016, Grayson intentionally caused a total tax loss of more than $1 million by intentionally not paying to the IRS income and social security taxes withheld from Zealcon employees’ wages and social security taxes due from Zealcon on those wages.

“Failing to account for or pay payroll taxes is not acceptable,” said Principal Deputy Assistant Attorney General Zuckerman of the Justice Department’s Tax Division. “The Department of Justice, working with the IRS, will ensure that our tax system is fairly enforced throughout the country.”

“Earenest Grayson is a dishonest employer who cheated both his employees and the United States government of more than $1,000,000 in stolen payroll taxes. Some of those taxes were payments for the Social Security and Medicare coverage of the employees,” said U.S. Attorney Trent Shores. “I hope Mr. Grayson’s potential prison sentence will dissuade other business owners from trying to cheat the system. Millions of honest small businesses pay their fair share of taxes to finance government operations as well as Social Security and Medicare for the elderly. Unfortunately, Mr. Grayson’s choice not to do so has subjected him to criminal penalties.”

United States District Court Judge Claire V. Eagan scheduled Grayson’s sentencing for Oct. 3, 2019. 

Selig & Associates is a boutique Tax Representation and Insurance Claims settlement firm in New York City. To schedule a legally privileged consultation with a Federal Tax Practitioner CPCU and Attorney, please call us directly at (212) 974-3435. 

We take a practical approach to problem solving and strive to obtain the best possible outcome for our clients.

Effective Tax Advocacy We successfully resolve civil and criminal tax problems including suspended Drivers Licenses and Passports. We provide practical solutions to difficult IRS and State tax problems. Specializing in unpaid sales and payroll taxes. We negotiate affordable installment agreements and if you have missing or unfiled tax returns, we can have them prepared and filed for you within 48 hours guaranteed. For immediate assistance, call us directly at (212) 974-3435 or contact us online. 

Insurance Claims We settle insured property damage claims in the shortest amount of time and at the least cost to the policyholder and insurance company. Insurance litigation is costly and time consuming. Accordingly, we provide policyholders and insurance companies with a cost effective alternative to litigation. Commercial and residential insurance representation includes: Environmental Damage, Mold (removal & remediation) Fire, Business Interruption, Burglary, Vandalism, Windstorm and Water Damage.  

For more information about our Tax and Insurance Claims settlement services or to schedule a FREE consultation, call (212) 974-3435 or contact us online. 

IRS explains CP2000 notices sent to taxpayers when their tax return doesn’t match information from 3rd parties

When a tax return’s information doesn’t match data reported to the Internal Revenue Service by employers, banks and other third parties, the IRS will send a letter to the taxpayer. The letter is called an IRS Notice CP2000, and it gives detailed information about issues the IRS identified and provides steps taxpayers should take to resolve those issues. This isn’t a formal audit notification, but a notice to see if the taxpayer agrees or disagrees with the proposed tax changes. Taxpayers should respond to the CP2000, usually within 30 days from the date printed on the notice. If a timely response can’t be made, taxpayers need to call the toll-free number shown on the notice and request additional time to respond. Taxpayers can also call the number on the notice for additional information or assistance, or visit Understanding Your CP2000 Notice on IRS.gov. The IRS will send another notice if the taxpayer doesn’t respond to the initial one, or if the IRS can’t accept the additional information provided. That follow-up notice is called an IRS Notice CP3219A, Statutory Notice of Deficiency. This notice gives detailed information about why the IRS proposes a tax change and how the agency determined the change. The notice tells taxpayers about their right to challenge the decision in Tax Court. Even if they decide not to go to court, the IRS will continue to work with them during the statutory notice timeframe to help resolve the issue. For more information, check out Understanding your CP3219A Notice on IRS.gov.

Selig & Associates is a boutique Tax Representation and Insurance Claims settlement firm in New York City. 

A legally privileged consultation with a Federal Tax Practitioner, CPCU and Attorney can be scheduled Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m.

We take a practical approach to problem solving and strive to obtain the best possible outcome for our clients.

Effective Tax Advocacy We successfully resolve civil and criminal tax problems including suspended Drivers Licenses and Passports. We provide practical solutions to difficult IRS and State tax problems. Specializing in unpaid sales and payroll taxes. We negotiate affordable installment agreements and if you have missing or unfiled tax returns, we can have them prepared and filed for you within 48 hours guaranteed. For immediate assistance, call us directly at (212) 974-3435 or contact us online. 

Insurance Claims We settle insured property damage claims in the shortest amount of time and at the least cost to the policyholder and insurance company. Insurance litigation is costly and time consuming. Accordingly, we provide policyholders and insurance companies with a cost effective alternative to litigation. Commercial and residential insurance representation includes: Environmental Damage, Mold (removal & remediation) Fire, Business Interruption, Burglary, Vandalism, Windstorm and Water Damage.  

For more information about our Tax and Insurance Claims settlement services, or to schedule a FREE consultation, call (212) 974-3435 or contact us online. 

NEW YORK'S (shameful) 2016 FINANCIAL CONDITION REPORT

2016 FINANCIAL CONDITION REPORT

Public Welfare

Enrollment in Public Assistance Increases Slightly for the First Time in Three Years

• Family Assistance provides up to 60 months of cash assistance to eligible needy families; Safety Net Assistance provides cash or non-cash assistance to eligible single adults, childless couples, persons who have exceeded the 60-month limit on family assistance, children living apart from adult relatives and certain other individuals.
• Public assistance enrollment in the State increased for the first time in three years, largely due to higher Safety Net Assistance (SNA) enrollment in New York City. Enrollment decreased in areas outside of New York City for the first time in eight years.
• Compared to last year, the average monthly number of recipients of public assistance in:
  • New York State increased by 4,498 (0.8 percent) to 572,720;
  • New York City increased by 17,509 (5.2 percent) to 356,350; and
  • areas outside New York City decreased by 13,011 (5.7 percent) to 216,370.
• Overall Family Assistance (FA) enrollment decreased by 3.0 percent for the second consecutive year, while overall SNA enrollment increased for the second consecutive year, but at a rate—3.8 percent—that was nearly four times higher than in State Fiscal Year 2014-15. Enrollment in FA and SNA increased in New York City, but decreased in areas outside of New York City. SNA is largely funded by the State and the counties, while FA is funded by the federal government.

Spending for Public Assistance Continues to Increase, But at a Slower Rate

• For the fourth consecutive year, public assistance spending increased, but by less than 1 percent and mainly because of an increase in SNA expenditures in New York City. The increase in public assistance expenditures continues the program’s recent spending growth, but it is occurring at a slower rate than in any of the last three years.
• Compared to last year, public assistance expenditures in:
  • New York State increased by $4.3 million (0.2 percent) to $2.24 billion;
  • New York City increased by $50.3 million (3.8 percent) to $1.39 billion; and
  • areas outside New York City decreased by $46.0 million (5.1 percent) to $848.0 million.
• SNA expenditures increased while FA expenditures decreased. For New York City, higher SNA expenditures more than offset lower FA expenditures. SNA expenditures accounted for 64.3 percent of total public assistance spending.
• Compared to last year, SNA expenditures in:
  • New York State increased by $36.7 million (2.6 percent) to $1.44 billion;
  • New York City increased by $54.6 million (6.0 percent) to $968.8 million; and
  • areas outside New York City decreased by $17.8 million (3.6 percent) to $472.3 million.
• Compared to last year, FA expenditures in:
  • New York State decreased by $32.4 million (3.9 percent) to $799.4 million;
  • New York City decreased by $4.3 million (1.0 percent) to $423.7 million; and
  • areas outside New York City decreased by $28.2 million (7.0 percent) to $375.7 million.
• Child Care Block Grant subsidies for low-income families transitioning from public assistance increased by $33.3 million (3.4 percent) to $1.01 billion. These subsidies are financed by a combination of federal, State and local sources.

SNAP Enrollment Decreases for Second Consecutive Year; Spending Decreases for Third Straight Year

• Enrollment in the State’s Supplemental Nutrition Assistance Program (SNAP) decreased for the second consecutive year, following more than a decade of steady growth. SNAP, formerly known as the Food Stamp Program, is funded by the federal government.
• Compared to last year, the average monthly number of recipients of SNAP in:
  • New York State decreased by 73,197 (2.4 percent) to 3.0 million;
  • New York City decreased by 47,542 (2.7 percent) to 1.69 million; and
  • areas outside New York City decreased by 25,655 (1.9 percent) to 1.31 million.
• Expenditures for SNAP decreased for the third consecutive year.
• Compared to last year, SNAP expenditures in:
  • New York State decreased by $110.6 million (2.2 percent) to $5.0 billion;
  • New York City decreased by $68.8 million (2.3 percent) to $2.97 billion; and
  • areas outside New York City decreased by $41.8 million (2.0 percent) to $2.04 billion.

CPCU, Claims Adjuster and Attorney

Helpful  When it comes to insurance, we specialize in difficult situations. To schedule a confidential consultation with a CPCU, Claims Adjuster and Attorney please call (212) 974-3435 today. 

Effective We assist builders, businesses, nightclubs, schools and religious institutions with specialty insurance coverage and first-party claims, including Environmental issues, Active Shooter and Workplace Violence Protection, Cyber and Employment Practices Liability Insurance. 

Skillful We settle first-party property damage claims for top dollar and resolve all residential and commercial claims, including Business Interruption, Burglary, Fire, Windstorm and Water Damage. 

Local Appointments are scheduled Monday through Thursday between the hours of 9:00 a.m. and 5:00 p.m. and on Fridays between 9:00 a.m. and 3:00 p.m. 

We Specialize in Difficult Situations. Tax & Insurance Representation

Tax Representation

Who Selig & Associates provides the most aggressive tax representation allowed by law. To schedule a legally privileged consultation with a Federal Tax Practitioner and Attorney please call (212) 974-3435 or contact us online. 

What We represent Individuals and Businesses before the IRS and State and specialize in unpaid Income, Sales and Payroll taxes. We negotiate excellent payment plans, compromise tax debts and resolve all civil and criminal tax issues, including suspended New York State Drivers Licenses. 

When Same day and emergency appointments are scheduled Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m. 

Where Our New York City offices are conveniently located and easily accessible by car, train and subway (just steps away from Penn Station). 

Why We’re successful because we provide New Yorkers with effective Income, Sales and Payroll tax representation, including audits, DOL and Workers Compensation issues. Missing tax returns can be prepared and filed within 48 hours, guaranteed.   

Insurance Advocacy 

Helpful We specialize in difficult situations. To schedule a confidential consultation with a CPCU, Claims Adjuster and Attorney please call (212) 974-3435 today. 

Effective We assist builders, businesses, nightclubs, schools and religious institutions with specialty insurance coverage and large dollar first-party claims, including Environmental issues, Active Shooter and Workplace Violence Protection, Cyber and Employment Practices Liability Insurance. 

Skillful We settle first-party property damage claims for top dollar and resolve all residential and commercial claims, including Business Interruption, Burglary, Fire, Windstorm and Water Damage. 

Local Appointments are scheduled Monday through Thursday between the hours of 9:00 a.m. and 5:00 p.m. and on Fridays between 9:00 a.m. and 3:00 p.m. 

Woman Sentenced to 5 Years in Federal Prison for Participating in IRS Impersonation Scam

John H. Durham, United States Attorney for the District of Connecticut, announced that NANCY J. FRYE, 51, of Bristol, was sentenced by U.S. District Judge Vanessa L. Bryant in Hartford to 60 months of imprisonment, followed by three years of supervised release, for her involvement in an IRS impersonation scam that defrauded hundreds of victims in the United States and Canada.

An IRS impersonation scam is operated by individuals who falsely represent themselves as employees of the IRS to obtain money from victims.  Typically, those executing the fraudulent scheme make unsolicited telephone calls to people and tell them that they are IRS agents or officers calling on behalf of the IRS.  During the calls, the impersonator tells the call recipient that the recipient has an outstanding debt with the IRS that must be paid immediately.  The impersonator then threatens persons with either arrest or a lawsuit if they do not immediately settle the bogus IRS debt.  Victims are instructed to wire money to individuals they believe are employees of the IRS in order to avoid the threatened action.

According to court documents and statements made in court, in October 2015, FRYE received phone calls and text messages from individuals who successfully recruited her to pick up money that was wired through MoneyGram and Western Union and to deposit the money into specific bank accounts.  FRYE, in turn, recruited Douglas Martin and others to assist her in picking up wired funds from locations in central Connecticut.  FRYE then deposited the money that she collected into the bank accounts.

Between October 2015 and June 2016, FRYE, and others working at her direction, received approximately $588,000 in wired funds from approximately 574 victims.Judge Bryant ordered FRYE to pay restitution in the amount of $585,321.

FRYE and Martin were arrested on September 15, 2016.

On June 12, 2017, FRYE pleaded guilty to one count of conspiracy to commit wire fraud.

Martin pleaded guilty to the same charge and, on November 2, 2017, was sentenced to 41 months of imprisonment.

Judge Bryant ordered FRYE, who is released on bond, to report to prison on January 8, 2018.

Since October 2013, TIGTA has received reports of more than 2.1 million impersonation related calls with more than 12,400 victims reporting losses of approximately $62 million.

This matter is being investigated by the Treasury Inspector General for Tax Administration (TIGTA) of the U.S. Department of the Treasury and U.S. Postal Inspection Service.  The U.S. Attorney gratefully acknowledges the assistance provided by the Rocky Hill Police Department, Bristol Police Department, and New York State Department of Taxation and Finance.

Are You in Trouble with the IRS or State? To schedule a free, legally privileged consultation with a Federal Tax Practitioner and Attorney in our conveniently located New York City office call (212) 974-3435 or contact us online. *Same day and emergency appointments are available Monday through Friday. 

✔  Unpaid income, sales and payroll taxes. 

✔   We negotiate excellent re-payment plans with the IRS and State.

✔   Missing tax returns prepared and filed within 48 hours, guaranteed. 

✔  Suspended passport / suspended drivers’ license.

✔  Civil and criminal tax representation.

✔  Income and sales tax audit. 

✔  Department of Labor.

✔  Workers Compensation.

Does Your Business Need Money for Taxes and Expenses? We provide excellent debt settlement options, including business and insurance financing, merchant funding, lines of credit and factoring. For a free consultation call (212) 974-3435 or contact us online. *Same day and emergency appointments are available Monday through Friday. 

✔   Fast approval.  

✔   Flexible re-payment schedule.

✔   No collateral requirements.

✔  No restrictions (pay taxes or use the funds as needed).

✔  No UCC-1 requirement. 

Attorney Charged in Offshore Tax Evasion Scheme – Selig & Associates, Aggressive Tax Representation

SELIG & Associates We solve Income, Payroll and Sales Tax Problems. For a FREE legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call (212) 974-3435 

Attorney [Allegedly] Conspired to Repatriate More Than $18 Million in Untaxed Money Held in Foreign Bank Accounts! A federal grand jury returned an indictment charging an attorney with one count of conspiracy to defraud the United States and three counts of tax evasion, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division and U.S. Attorney Ryan K. Patrick for the Southern District. According to the indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to repatriate more than $18 million in untaxed earnings from the co-conspirator’s business bank account located in the Isle of Man.  Knowing that his co-conspirator had never paid taxes on these funds, Pursley allegedly designed and implemented a scheme whereby the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator.

The indictment alleges that Pursley received more than $4.8 million and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.  The indictment further alleges that for tax years 2009 and 2010 Pursley evaded the assessment of and failed to pay the incomes taxes due on this money by, amongst other means, withdrawing the funds as purported non-taxable loans or returns of capital.  Pursley allegedly used the money he received to purchase personal assets, including a vacation home in Vail, Colorado and property in Houston. 

If convicted, Pursley faces a statutory maximum sentence of five years in prison for the conspiracy count, and five years in prison for each count of tax evasion.  He also faces a period of supervised release, monetary penalties, and restitution. An indictment merely alleges that a crime has been committed. A defendant is presumed innocent until proven guilty beyond a reasonable doubt.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Patrick commended special agents of IRS-Criminal Investigation, who investigated the case, and Senior Litigation Counsel Nanette Davis, Trial Attorney Grace Albinson, and Trial Attorney Sean Beaty of the Tax Division, who are prosecuting this case.

#TaxCrimes, #TaxEvasion, #FailureToFileTaxReturn, #CriminalNonFiling, #FilingFalseTaxReturns, #InstallmentAgreements,  #PartialPaymentAgreements, #IRSaudits, #SalesTaxAudits, #SalesTaxControversies, #WageGarnishments, #BankLevies, #RealPropertySeizure, #InnocentSpouseRelief, #TrustFundRecoveryPenalty, #PayrollTaxes, #WorkersCompensationInsuranceAudits, #WorkersCompAudit, #StatuteOfLimitations, #OfferInCompromise, #OIC, #AdministrativeAppeals, #CollectionDueProcessHearings, #CDP, #BestTaxAttorneyInNYC, #We Solve Tax Problems, #Successful Tax Attorney, #Honest Accountant, #Proven Results, #Professional Guarantee. #WeSolveTaxProblems, #SuccessfulTaxAttorney,

Is Your Insurance Company Taking Advantage of You? Adjuster Selig and Attorney Dorin settle residential and commercial property insurance claims, including business interruption, burglary, fire, windstorm and losses caused by water damage. For more information call David Selig at (212) 974-3435.

Sentenced to Prison for Stealing Government Funds & Obstructing IRS. SELIG & Associates is NUMBER 1#

4 September 2018: An extremely unhappy man was just sentenced to 18 months in prison for stealing government funds and corruptly endeavoring to obstruct the internal revenue laws, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Maria Chapa Lopez. 

According to documents filed with the court, Attila Kalmar filed 2007 through 2009 trust returns with the Internal Revenue Service (IRS) in the name of First AK-Open Sec Trust, a nominee entity, seeking more than $480,000 in fraudulent refunds.  

Kalmar deposited a refund check he received as a result of these filings into a bank account, and then used the proceeds to purchase real property, acquire thousands of dollars in gold coins, and wire money overseas.  Moreover, Kalmar attempted to impede the internal revenue laws by transferring funds between nominee bank accounts and falsely representing to the IRS that an IRS revenue officer was the trustee for First AK-Open Sec Trust.

In addition to the term of prison imposed, U.S. District Judge Sheri Polster Chappell ordered Kalmar to serve three years of supervised release, forfeit $274,019 and a piece of real estate to the United States, and pay $274,019 in restitution to the IRS. 

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Chapa Lopez commended special agents of IRS–Criminal Investigation, who conducted the investigation, and Trial Attorneys William M. Montague and Grace E. Albinson of the Tax Division, who prosecuted the case.

SELIG & Associates: Proven Results We solve Income, Payroll and Sales Tax Problems. For a FREE legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call (212) 974-3435 or through our Confidential Contact Form. 

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ROTTEN TO THE CORE: IRS Special Agent Convicted of Filing False Tax Returns, Theft of Government Money & Obstruction of Justice

A [former] special agent for the Internal Revenue Service Criminal Investigation (IRS-CI) Division was convicted on June 15 after a jury in Sacramento, California found her guilty of filing false tax returns, obstruction of justice and stealing government money, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and Acting U.S. Attorney Alex G. Tse for the Northern District of California.

According to court documents and evidence introduced at trial, Alena Aleykina, who is also a Certified Public Accountant and holds a master’s degree in business administration, filed six false tax returns: three personal tax returns for years 2009, 2010, and 2011 and three in the names of trusts she created for years 2010 and 2011.  On her personal tax returns, Aleykina fraudulently claimed the head of household filing status, false dependents, and deductions for education expenses to which she was not entitled.  On her trust tax returns, she failed to report rent she received from the tenants of her rental property and falsely claimed to be paying wages to her mother and her sister to care for her son and for her father.

Additionally, Aleykina stole government funds and obstructed justice during the investigation.  She stole from the IRS’s Tuition Assistance Program by falsely claiming $4,000 in tuition reimbursement for classes that she did not take.  When criminal investigators approached Aleykina to retrieve her government laptop, Aleykina lied to the agents about the location of the laptop and began deleting files from the computer after the agents left.  The total loss to the government from Aleykina’s conduct is more than $60,000.

Sentencing has been scheduled for Sept. 25 before Judge John A. Mendez.  Aleykina faces a maximum statutory penalty of three years in prison for each false tax return count, 10 years in prison for theft of government funds, and 20 years in prison for obstruction of justice as well as a period of supervised release, restitution and monetary penalties. 

Principal Deputy Assistant Attorney General Zuckerman and Acting U.S. Attorney Tse thanked special agents of the Treasury Inspector General for Tax Administration and IRS-CI, who conducted the investigation, and Assistant U.S. Attorney William Frentzen and Tax Division Trial Attorneys Arthur Ewenczyk and Charles O’Reilly, who are prosecuting the case.

Proven Results We solve tax problems quickly and quietly. Professional tax representation includes defense against 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") asset protection trusts, tax liability settlement trusts, and most other tax matters.

Successful Tax Advocates We keep our clients out of court and out of prison. 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”). 

Conveniently Located Our offices are conveniently located at 147 West 35th Street (near Penn Station) and same day and emergency appointments are available. 

Professional Service To schedule a legally privileged consultation with an experienced Federal Tax Practitioner and licensed Attorney call Selig & Associates directly (212) 974-3435.  

We Settle Insurance Claims for Top Dollar In addition to our tax practice we settle large residential and commercial property insurance claims, including business interruption, burglary, fire, windstorm and water damage. 

Guaranteed We return telephone calls and answer emails promptly and we provide our clients with regular updates and status reports. 

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 #TaxCrimes, #TaxEvasion, #FailureToFileTaxReturn, #CriminalNonFiling, #FilingFalseTaxReturns, #InstallmentAgreements,  #PartialPaymentAgreements, #IRSaudits, #SalesTaxAudits, #SalesTaxControversies, #WageGarnishments, #BankLevies, #RealPropertySeizure, #InnocentSpouseRelief, #TrustFundRecoveryPenalty, #PayrollTaxes, #WorkersCompensationInsuranceAudits, #WorkersCompAudit, #StatuteOfLimitations, #OfferInCompromise, #OIC, #AdministrativeAppeals, #CollectionDueProcessHearings, #CDP, #BestTaxAttorneyInNYC, #We Solve Tax Problems, #Successful Tax Attorney, #Honest Accountant, #Proven Results, #Professional Guarantee. #WeSolveTaxProblems, #SuccessfulTaxAttorney, #HonestAccountant, #ProvenResults, #ProfessionalGuarantee..

A No Holds Bared Exposé: Advice on Unreported Tip Income and IRC Sections 7436 and 3121(q)

You should hire SELIG & Associates

Personal Service

We meet with our Clients personally.

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We provide our Clients with regular updates and status reports.

Attention to Detail

We return telephone calls and answer emails.

Confidential Information

To schedule a legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call Selig & Associates directly (212) 974-3435.

Professional Service 

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 Representation 

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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We solve Tax Problems quickly and quietly.

Successful Advocates

We solve Civil and Criminal Tax Problems.

Proven Results

We solve Payroll and Sales Tax Problems.

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.”

Office of Chief Counsel Internal Revenue Service

memorandum

Number: 201816010Release Date: 4/20/2018
CC:TEGE:EOEG:ET1:Conway- Hataloski
POSTN-129181-17

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

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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.

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