June 9, 2009
Dear Friends of Our Firm,
Past due payroll taxes may cause small business owners to lose their businesses —or even their freedom. The IRS is increasing tax compliance efforts in this area, so small businesses should learn the common audit triggers and how to avoid dire consequences. Here are seven key points:
1. Small businesses are the most likely target of increased tax compliance enforcement. They have been identified by the IRS as the largest source of uncollected taxes. And because they are known to be big tax evaders, the IRS tends to focus their enforcement efforts on small business owners, especially during economic downturns.
2. A business may be lost due to aggressive IRS collection tactics for past due payroll taxes. When it comes to payroll tax debt, IRS revenue collectors have unyielding power and authority. They can padlock the front doors, putting someone out of business, without obtaining a court order. They can seize machinery and equipment. They can contact customers and if the customers owe the business owner money, the IRS may intercept these funds through their powerful levying authority.
3. Payroll tax penalties add up quickly and generate huge tax debt regardless of whether the
business is operated as a sole proprietorship, corporation or limited liability company (LLC). The three major penalties (failure to file, failure to deposit and the failure to pay) can add up to about 33% plus interest if they are not paid within just 16 days of the due date for filing the 941 (Payroll Tax Return).
4. Not filing or paying payroll taxes can be considered a federal crime. The IRS may refer the
case to the Criminal Investigation Division and ultimately to the Department of Justice if the agency can prove that the business owner intentionally did not file and/or pay.
5. Borrowing from payroll taxes is against the law. Many small and midsize businesses use the
money they collect from payroll taxes to pay their operating expenses. The money collected from employees for federal income tax and FICA tax does not belong to the business and must be accounted for and paid to the government. Generally, one must make a federal tax deposit (by taxfiling service, phone or in person at a bank) three days after the pay date of the payroll checks.
6. The IRS can pursue business owners individually for payroll taxes owed. It may assess the
Trust Fund Recovery Penalty (TFRP) against owners and shareholders. The IRS is the only creditor that can effortlessly “pierce” the corporate veil and go after individuals, which can be a very scary situation.
7. What should business owners do if they are audited? Someone who owes payroll taxes
should obtain expert professional help before it’s too late. Representing yourself before the IRS would be like going to court without a lawyer. And nonprofessionals should not take any chances when dealing with the IRS.
We have the expertise you need. Viable options may include payment (“stepped”) plans, offers in compromise, computational abatement of penalties, abatement of penalties due to reasonable cause, and analyzing the statute of limitation to assess. Call our office at 262-754-4300 to arrange a consultation.
