$5 million in paychecks, $0 withheld: a Brooklyn construction owner is indicted on payroll-tax charges.

Federal prosecutors allege that for seven years, workers at a group of Brooklyn construction subcontracting companies were paid weekly wages with no federal employment taxes withheld at all. The case is an indictment — allegations, not convictions — but the payroll rule at the center of it applies to every employer, every payday.

An indictment unsealed today in federal court charges Arthur Nelson, of Staten Island, New York, and Sunny Isles Beach, Florida, and three co-defendants — Joseph Free, Paul Vasquez, and Ulysses Jude Devocion — with a wide range of tax and financial fraud crimes. The charges include conspiring to defraud the IRS, tax evasion, and willfully failing to withhold and pay over employment taxes.

Read this part first: an indictment is merely an allegation. The Justice Department says so in its own release, and every defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law. Nothing below treats the allegations as proven facts.

What prosecutors allege happened

According to the indictment, Nelson owned and operated a group of construction subcontracting companies — including MTB AMG Inc. and PAL AMG Inc., which installed glass on commercial buildings; MTB Metal Fabricators Inc., which provided manufacturing services; and Wired NYC LLC, which provided electric installation services. The companies were based in Brooklyn, New York, until March 2022, when they relocated to New Jersey.

From April 2017 through May 2024, prosecutors allege, the four defendants caused the companies’ employees to be paid weekly wages with no amounts withheld for federal employment taxes. Those unreported wages totaled at least approximately $5 million.

The indictment also alleges that personal expenses were falsely classified as business expenses; that false federal tax returns were filed, including quarterly employment tax returns, corporate tax returns, and individual income tax returns; that the companies issued false W-2 wage statements to employees. Separately, prosecutors allege Nelson underreported his business gross receipts by approximately $13 million. Prosecutors further allege a separate scheme, from July 2019 through March 2025, to submit false financial documents to obtain loans, mortgages, lines of credit, credit cards, and surety bonding contracts.

The charges Nelson faces

Nelson is charged with one count of conspiracy to defraud the United States, six counts of willful failure to withhold and pay over employment taxes, one count of attempting to interfere with the administration of the internal revenue laws, two counts of tax evasion, one count of conspiracy to commit wire fraud, and two counts of willful failure to file reports of foreign bank and financial accounts (FBARs).

If convicted, the Justice Department notes, the maximum penalty for willful failure to withhold and pay over employment taxes is five years in prison per count — the same five-year maximum that applies to the conspiracy-to-defraud and tax evasion counts. Wire-fraud conspiracy carries a maximum of 20 years. Those are statutory maximums, not predictions; any sentence would be set by a federal judge after considering the U.S. Sentencing Guidelines and other statutory factors. IRS Criminal Investigation is investigating the case.

Why withholding is not the employer’s money to skip

The rule underneath this case is not obscure. The IRS states it plainly: employers generally must withhold federal income tax from employees’ wages, must withhold Social Security and Medicare taxes and pay the employer share, must deposit those employment taxes, and must report wages on employment tax returns — for most employers, Form 941, the Employer’s Quarterly Federal Tax Return — and on Form W-2 at year end.

Withheld taxes are called trust fund taxes for a reason: the employer holds the employee’s money in trust until it is deposited with the IRS. Treating that money as working capital — paying rent, materials, or other creditors with it — is the fact pattern the government says turns a cash-flow problem into a personal — and potentially criminal — one.

The civil side: the Trust Fund Recovery Penalty follows the person

Separate from any criminal case, the IRS can assess the Trust Fund Recovery Penalty (TFRP) under section 6672. The penalty equals 100% of the unpaid trust fund taxes — the withheld income tax plus the employee share of FICA — and it can be assessed personally against any person who was responsible for collecting or paying over the tax and willfully failed to do so.

Two parts of the IRS definition matter to owners who fall behind:

• Willfulness does not require bad intent. The IRS says a responsible person acts willfully if they were, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or were plainly indifferent to it. Using available funds to pay other creditors when the business cannot pay its employment taxes is an indication of willfulness.
• It reaches personal assets. Once the penalty is asserted, the IRS can take collection action against the responsible person’s personal assets, including filing a federal tax lien or taking levy or seizure action. A proposed assessment letter gives the person 60 days to appeal (75 days if the letter is addressed outside the United States).

In plain English: the business falling behind on payroll taxes does not automatically end with the business. The person who controlled the money and chose what got paid can potentially be on the hook personally — and “I paid other bills instead” is one of the facts the IRS points to, not a defense to it.

What falling behind actually looks like — and the safe order: withhold, deposit, file, match

• LEGAL: withholding is calculated every payday, deposits are made on schedule, Form 941 is filed every quarter, and W-2s match what was actually paid and withheld.
• SKETCHY: deposits slip during a tight month, 941s are filed late or with balances that keep rolling forward, and the gap is treated as a loan the business will catch up on later.
• STOP: wages are being paid with nothing withheld, W-2s do not match reality, or payroll money is covering other bills. That is the point to get the payroll records reviewed before the next quarter closes — not after a notice or a visit arrives.

Businesses fall behind on payroll taxes for ordinary reasons — a slow-paying customer, a job that ran over, a bad quarter. The resolution options that exist for payroll-tax debt, including payment plans and Trust Fund Recovery Penalty defense, work best while returns are filed, current deposits are being made, and the paper matches the payroll. A free 15-minute case review is the place to sort out which of those options fits a specific set of facts.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems — back taxes, liens, levies, garnishments, payroll tax, and audits — for individuals and businesses nationwide.