From Reality TV to Real-Life Tax Fraud: Peter Thomas’ $2.5 Million Scandal
Peter Thomas, best known for his appearances on The Real Housewives of Atlanta, was sentenced on December 19, 2024, to 18 months in federal prison after pleading guilty to tax fraud. In addition to his prison term, he was ordered to pay over $2.5 million in restitution and will face two years of supervised release following his incarceration..1 His case highlights the severe consequences business owners face when they mismanage payroll taxes.
Between 2017 and 2023, Thomas failed to remit more than $2.5 million in employment taxes for his various business ventures, including over $1.7 million in trust fund taxes withheld from employee wages.2 Instead of fulfilling his tax obligations, he funneled substantial funds into personal expenses, including $370,000 on travel and ride-sharing services and $250,000 on luxury goods from high-end brands like Prada, Louis Vuitton, and Givenchy.3 Prosecutors revealed that while his businesses expanded, he continued to ignore payroll tax responsibilities, ultimately leaving the IRS with a massive unpaid tax bill.
Federal prosecutors called Thomas’s actions a “flagrant violation” of tax laws, emphasizing that he enriched himself and his businesses at the government’s expense.4 Ahead of his sentencing, Thomas took to Instagram, admitting that he had neglected payroll taxes for over a decade and warning fellow entrepreneurs to take tax compliance seriously.5 His downfall serves as a serious warning—no matter how successful or high-profile a business owner may be, ignoring payroll tax obligations can lead to severe financial penalties and prison time.
Understanding Payroll Tax Obligations and Trust Fund Taxes
Payroll taxes are more than just another business expense—they are a legal responsibility. When employers withhold payroll taxes from their employees’ paychecks, they are holding those funds in trust for the IRS and other tax agencies.6 These trust fund taxes include federal income tax withholdings and Social Security and Medicare (FICA) taxes, which consist of both employee and employer contributions. FICA stands for the Federal Insurance Contributions Act and represents the payroll tax that funds Social Security and Medicare programs.7
From the moment these funds are deducted from wages, the IRS considers them government property. Employers are legally required to deposit payroll taxes on a set schedule, typically semi-weekly or monthly, based on the size of their payroll.8 Failing to do so can quickly lead to financial and legal trouble, as unpaid payroll taxes don’t just disappear—they accrue interest and penalties, making it even harder for businesses to catch up.
When business owners—like Peter Thomas—fail to remit these payments, they are engaging in what’s often called “pyramiding” or “payroll tax theft.”9 This isn’t a minor oversight; it’s a serious federal offense. The IRS aggressively pursues payroll tax offenders, and the consequences can be severe, ranging from massive financial penalties to criminal prosecution.
The High Price of Ignoring Payroll Taxes: Fines, Liens, and Business Shutdowns
Failing to properly handle payroll taxes can lead to severe civil penalties, as the IRS has multiple enforcement tools at its disposal. One of the most aggressive measures is the Trust Fund Recovery Penalty (TFRP), which allows the IRS to impose a 100% penalty equal to the unpaid tax amount.10 For example, if a business owner fails to deposit $50,000 in payroll taxes, they could end up owing $100,000 due to penalties alone. What makes this penalty especially harsh is that it doesn’t just apply to business owners—any “responsible person” who willfully fails to pay payroll taxes, including managers, accountants, and even bookkeepers, can be held personally liable.11
Beyond direct penalties, the IRS can also take enforcement actions such as federal tax liens and levies. If payroll tax debts remain unpaid, the IRS can file a federal tax lien against a business owner’s personal and business assets, making it nearly impossible to secure financing or sell property.12 In more severe cases, the IRS can go further by levying (seizing) assets, including bank accounts and real estate. These actions can cripple a business financially, leaving owners with few options to recover.
For businesses that continuously fail to meet payroll tax obligations, the consequences can escalate to forced closure and even bankruptcy. The IRS collaborates with the Department of Justice (DOJ) to enforce compliance with employment tax obligations, referring cases of willful noncompliance to the DOJ’s Tax Division, which can pursue civil or criminal litigation and seek court injunctions to shut down businesses that consistently neglect their payroll tax duties;13 and in extreme cases, unpaid payroll tax debts can push a company into bankruptcy. However, tax debts are generally non-dischargeable in bankruptcy proceedings, meaning business owners may still be personally liable even after their company has been dissolved.14 This makes payroll tax compliance a critical issue—one that every small business owner must take seriously to avoid devastating financial and legal consequences.
From Unpaid Taxes to Prison Time: The Criminal Side of Payroll Tax Fraud
When payroll tax violations cross the line into intentional fraud, the consequences become even more serious. The IRS and the DOJ aggressively prosecute payroll tax fraud under various federal statutes, with penalties that include hefty fines and potential prison time.15 One of the most severe charges is willful failure to collect or pay taxes, which applies when a business owner knowingly withholds trust fund taxes but fails to remit them.16 This offense can result in up to five years in federal prison per violation and fines of up to $250,000 for individuals or $500,000 for corporations, making it one of the IRS’s most powerful enforcement tools.
Beyond direct failure to remit payroll taxes, business owners who intentionally conceal unpaid payroll tax liabilities—through tactics like underreporting wages, keeping multiple sets of books, or falsifying documents—can be charged with tax evasion.17 The penalties for tax evasion include up to five years in prison, fines of up to $100,000 ($500,000 for corporations), and full repayment of back taxes plus interest and penalties. These cases are taken extremely seriously, as tax evasion is considered a direct attempt to defraud the government.
In addition to tax-specific charges, payroll tax fraud cases often involve wire and mail fraud charges if the fraud includes electronic filings, mailed tax forms, or financial transactions across state lines.18 These laws are frequently used in high-profile tax fraud cases because they provide prosecutors with additional leverage to secure convictions. Given the severe consequences, business owners must prioritize payroll tax compliance to avoid life-altering legal and financial repercussions.
Lessons for Small Business Owners & How to Avoid Costly Payroll Tax Mistakes
The Peter Thomas case is a clear wake-up call that payroll tax compliance isn’t optional—it’s a legal responsibility that can make or break a business. To stay out of trouble, small business owners should take proactive steps such as outsourcing payroll processing to ensure timely deposits, automating payroll tax payments to avoid missed deadlines, and reviewing payroll records regularly to catch errors before they become costly problems. Since payroll tax laws can be complex and frequently change, consulting with a tax attorney or CPA can provide crucial guidance and help prevent compliance issues.
Ignoring payroll tax obligations isn’t just risky—it can be financially and legally devastating. The IRS aggressively pursues payroll tax violations, and noncompliance can lead to massive fines, business closures, and even criminal charges. If you’re struggling to keep up with payroll taxes or unsure whether you’re in full compliance, seeking professional help now can save you from serious trouble down the road.
1 Esther Kang, RHOA Alum Peter Thomas Pleads Guilty to Tax Fraud, Sentenced to 18 Months in Prison, People.com, (Dec. 19, 2024), https://people.com/rhoa-alum-peter-thomas-pleads-guilty-to-tax-fraud-sentenced-to-18-months-in-prison-8764453 (last visited Feb. 14, 2025).
2U.S. Attorney’s Office for the Western District of North Carolina, Charlotte Businessman Is Sentenced To Prison For Tax Offense (Dec. 19, 2024), https://www.justice.gov/usao-wdnc/pr/charlotte-businessman-sentenced-prison-tax-offense (last visited Feb. 14, 2025).
3 Id.
4Ellie Wolfe, Feds want 2-year prison sentence for Bar One’s Peter Thomas in tax case, The Baltimore Banner, (Dec. 10, 2024), https://www.thebaltimorebanner.com/culture/food-drink/peter-thomas-bar-one-baltimore-federal-tax-case-WYKLMYT4SJH5XESSW7ECZO3GMA/ (last visited Feb. 17, 2025).
5Peter Thomas (@peterthomasrhoa), Instagram (Dec. 18, 2024, “Public announcement, most people are confused when it come to paying withholding taxes, I am here to set the record straight, yes you will go to jail, test you still have to pay the taxes also, jail don’t mean that the taxes is forgiven. All young business owner, please learn for my mistake. Have a bless day, happy holidays.”, https://www.instagram.com/reel/DDu88bYyz_5/?igsh=MXB2d2ozamFpN3AwNw== (last visited Feb. 17, 2025).
6Internal Revenue Serv., Trust Fund Taxes (Aug. 22, 2024), https://www.irs.gov/businesses/small-businesses-self-employed/trust-fund-taxes (last visited Feb. 17, 2025).
7Soc. Sec. Admin., What is FICA?, Pub. No. 05-10297, (Mar. 2017), https://www.ssa.gov/thirdparty/materials/pdfs/educators/What-is-FICA-Infographic-EN-05-10297.pdf (last visited Feb. 17, 2025).
8 Internal Revenue Serv., The ABCs of FTDs, Pub. No. 3151, https://www.irs.gov/pub/irs-pdf/p3151.pdf (last visited Feb. 17, 2025).
9Internal Revenue Serv., IRS Warns Businesses, Individuals to Watch for Questionable Employment Tax Practices, IR-2004-47, (Apr. 5, 2004), https://www.irs.gov/pub/irs-news/ir-04-047.pdf (last visited Feb. 19, 2025)
10Internal Revenue Serv., Employment Taxes and the Trust Fund Recovery Penalty (TFRP) (Oct. 9, 2024), https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp (last visited Feb. 19, 2025).
11 Id.
12Internal Revenue Serv., Understanding a Federal Tax Lien (Feb. 18, 2025), https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien (last visited Feb. 19, 2025).
13 U.S. Dep’t of Justice, Employment Tax Enforcement (Feb. 6, 2024), https://www.justice.gov/tax/employment-tax-enforcement-0 (last visited Feb. 19, 2025).
14See 11 U.S.C. § 523(a)(1)(A) (certain tax debts, including trust fund taxes, are non-dischargeable in bankruptcy, leaving responsible persons personally liable).
15U.S. Dep’t of Justice, Employment Tax Enforcement, supra note 13.
16See IRC § 7202.
17See IRC § 7201.
18See 18 U.S.C. § 1343 (wire fraud) and 18 U.S.C. § 1341 (mail fraud). Each fraudulent transaction can carry up to 20 years in federal prison per count.
