These scams rely on an interpretation of tax law that wages are not a 'source' of income and that the definition of 'sources of income' does not apply to individuals. This is wrong, says the IRS, and federal courts have agreed with the tax agency, rejecting these arguments as frivolous and imposing penalties on tax evaders. Evading employment taxes can have serious consequences. Employers may be subject to criminal and civil sanctions for willfully failing to pay employment taxes. The convicted tax evaders also were ordered to make restitution to the government for the unpaid taxes.
Additional investigations are under way.
While employers may see jail time, workers also could face tax consequences. If these taxes aren't withheld regularly from paychecks, a taxpayer could face a huge tax bill in April, plus penalties and interest for not paying throughout the year as income was earned. I don't pay taxes. In these cases, con artists boast about how they don't file or pay taxes. The real secret, says the IRS, is that many of these scammers actually file and pay taxes.