The (Not Boring) Boring Small Business Bookkeeping and Accounting Podcast

Can a Bookkeeper Go to Jail for Payroll Taxes? S9E7

Paul Rosenblum, Expert Bookkeeper Season 9 Episode 7

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0:00 | 3:12

Payroll taxes are not just paperwork, and Paul Rosenblum shares a quick but important reminder about how bookkeepers can face serious legal consequences when payroll taxes are not filed or paid correctly. Using a real Rhode Island case, our favorite Bookkeeping Mensch reflects on bookkeeper liability, professional responsibility, and why ethics matter so much in bookkeeping. If you’ve ever wondered whether a bookkeeper can be held legally responsible for payroll taxes, this short episode will give you something to think about.

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Season 9, Episode 7: Can a Bookkeeper Go to Jail for Payroll Taxes?

Part of being an accountant is the ability to sign a tax return that you prepared. What you are signing, as an accountant or an EA or any other kind of a tax preparer, is saying that you are not aware of any fraud in this tax return or in the books given to you to put together a tax return from.  However, did you know that bookkeepers, although we don’t sign tax returns, in certain circumstances can be held accountable for not filing or paying all taxes?  

Here’s the short story of a Rhode Island bookkeeper who is now charged with a failure to pay $787,900 in payroll taxes. She withheld that money from employees paychecks but did not file or pay the 941 taxes to the IRS. The company, ELJ Inc., says that this happened during the height of Covid in 2020 and that documents were filed incorrectly by an inexperienced staff member. The company’s internal review confirmed that there was no malicious intent, but the bookkeeper responsible acknowledged the violation. But as it stands right now, there is a federal case going on to determine what the final outcome will be. The company says that it expects to resolve all outstanding tax obligations, including penalties or fines. 

So, this is why some bookkeepers do have insurance --- since we are liable for possible fraud. Should all bookkeepers be required to have insurance?  Something to think about.  There have been other cases where a bookkeeper has been called as a witness in court as in the Paul Manafort case of about 10 years ago.  So, even though we don’t sign tax returns, we could be legally responsible for not doing the right thing.  An honest mistake is another story, of course.  

There are many cases like this. Another reason why in the signature of my email, my title is ‘Professional Bookkeeper’. That’s my way of saying that I am a bookkeeper, not a would-be felon. 

 In other words, bookkeepers don’t get any ideas. Period.  You didn’t know that bookkeepers can be held accountable?   Now you do.   I’m Paul Rosenblum

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