Millions of small businesses fall behind on payroll taxes. Uncle Sam is going after payroll taxes criminally in a serious way. So what makes the routine payroll tax case go criminal? Eric is joined on this week’s podcast by Former IRS Special Agent and CPA Robert Nordlander. Eric and Rob break down when a business’s payroll tax issue is likely to get referred to as criminal, and what the special agents look for in a payroll tax case they decide to take.

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When Payroll Taxes Go Criminal With Robert Nordlander

Payroll tax problems are rarely just about taxes—they’re a symptom of deeper business issues. As discussed in this podcast conversation with former IRS Special Agent Robert Nordlander, when a company falls behind on payroll taxes, it’s usually due to either poor cash flow management or a lack of financial understanding. In some cases, it can even involve internal theft or mismanagement.

At their core, payroll taxes are fundamentally different from other tax obligations. Once money is withheld from an employee’s paycheck, it no longer belongs to the business—it belongs to the government. Failing to remit those funds isn’t just a compliance issue; it can be viewed as theft. That’s why the IRS treats payroll tax violations so seriously, and why these cases increasingly cross into criminal territory.

Historically, payroll tax cases were rarely prosecuted criminally. But that changed around 2013–2015, when enforcement priorities shifted. Today, payroll taxes represent a major portion of federal revenue, and the IRS has made it clear: businesses that misuse these funds will face consequences. The threshold for “willfulness” is surprisingly low—if a business chooses to pay other expenses (like rent or personal lifestyle costs) instead of remitting payroll taxes, that alone can trigger criminal exposure.

So what turns a civil payroll tax issue into a criminal case?

One major trigger is behavior. When business owners ignore IRS notices, mislead revenue officers, or repeatedly promise compliance without following through, they increase their risk significantly. Another red flag is lifestyle inconsistency—if an owner claims financial hardship but continues to fund luxury expenses, it becomes much easier for investigators (and juries) to infer intent.

Additionally, payroll tax violations are often the “low-hanging fruit” in broader investigations. Compared to complex income reconstruction, payroll tax cases are straightforward: identify wages paid, calculate the withholding, and prove it wasn’t remitted. That simplicity makes them attractive to prosecutors.

Beyond criminal exposure, the financial consequences are severe. The Trust Fund Recovery Penalty allows the IRS to hold individuals personally liable—not just business entities. Owners, managers, and even employees responsible for handling payroll can all be on the hook. This can devastate not only businesses but also personal relationships, especially in family-run companies.

What should business owners do if they fall behind?

First, act quickly. The IRS is often willing to work with businesses that are proactive and transparent. Payment plans and restructuring options may be available—but only if the problem is addressed early.

Second, diagnose the root issue. Is the business underpriced? Overstaffed? Operating with a flawed model? Payroll tax problems are often a sign that the business itself needs restructuring—or, in some cases, shutting down.

Finally, don’t ignore the problem. As Nordlander notes, the IRS will not allow businesses to “pyramid” payroll tax debt indefinitely. Eventually, enforcement will escalate, and the outcome will be far worse.

The bottom line: payroll tax issues are urgent, serious, and potentially criminal. But with the right approach—honesty, timely action, and a willingness to fix underlying problems—they can often be resolved before reaching that point.

 

Important Links

• Robert Nordlander
• Criminal Tax Secrets
• Unpaid Payroll Taxes, A Time Bomb You Can Defuse
• Erase the Penalty

 

About Robert Nordlander

Robert Nordlander spent over 20 years as a special agent with IRS-Criminal Investigation chasing tax evaders and money launderers around the world. He currently is the sole shareholder of Nordlander CPA, PLLC, a forensic accounting and tax resolution firm that specializes in following the money and solving large tax problems. As a bestselling author, he speaks nationwide on forensic accounting and tax resolution matters. Nordlander is frequently an expert witness in court cases that require forensic accounting, such as criminal, divorce, partnership disputes, economic damages, and bankruptcy.

He has a Master’s degree in Business Administration and holds a CPA license and CFE certification. He can be contacted at https://www.nordlandercpa.com/