Can you face criminal charges for failing to pay payroll tax?

When a business owner who collects payroll taxes from her employees does not submit them to the IRS that person will have the trust fund penalty assessed against her.  The Trust Fund Penalty is the amount of taxes withheld from the employee’s paycheck.  Most trust fund cases are not criminal because

 

the IRS recognizes that the employer failed to pay the taxes simply because of oversight or that he did not have enough income to pay all the bills at the time.  However, if the IRS determines that the business owner willfully chose not to pay the taxes (e.g. to convert the money to his own use or similar reasons) then IRC Sec. 7202 makes such action a felony with criminal penalties.  Also, if the Trust Fund penalty is very large, this can also lead to criminal prosecution.  Such prosecution will entail large fines and, in many cases, prison time.  It is important to note that one can still be prosecuted even if he later pays the taxes after the IRS files the charges.  Therefore, one needs to be proactive before the situation goes too far.