Tax Law Center Blog

The IRS closely monitors businesses paying wages in cash for potential employment tax violations. Under IRC § 3402, employers must withhold and remit payroll taxes, and failure to do so can result in Trust Fund Recovery Penalties (TFRP) under IRC § 6672, holding responsible parties personally liable. Additionally, under IRC § 7202, willful failure to collect and pay employment taxes is a felony, carrying penalties of up to five years in prison and substantial fines.

A recent case is:

Jose Camilo Perez, Jr. of Sewell, New Jersey, pleaded guilty in February 2025 before Chief U.S. District Judge Renée Marie Bumb to an information charging him with one count of tax evasion. Perez controlled a company that digitized medical records for hospitals and other healthcare entities. From 2016 through 2023, the business received more than $8,000,000 for the services it performed. Perez attempted to evade the assessment of federal income taxes by cashing checks payable to the business at a check cashing business rather than depositing those checks into the business’s bank account or his personal bank account, and then he used the cash for personal expenses and to pay payroll. From 2016 through 2023, Perez did not report any of the income he received from the business to the IRS. As a result, Perez evaded income taxes of more than $3,400,000. The tax evasion charge carries a maximum potential penalty of five years in prison and a $250,000 fine.

IRS enforcement in this area has increased, particularly through audits, whistleblower claims, and data analytics identifying payroll tax noncompliance. Businesses using cash payroll should maintain detailed payroll records, ensure proper tax withholding, and avoid structuring cash withdrawals to prevent IRS scrutiny and potential criminal liability.