Payroll Tax Liability Resolutions Strategies

Payroll Tax Liability Resolutions Strategies

Over the past few weeks, I’ve written about payroll tax liabilities for a business and how the IRS assesses these taxes and attempts to collect them from both the business and employees within the business that the IRS deems “responsible” for “collecting, accounting for and paying the taxes” to the government.

This week I am going to discuss strategies for resolving these payroll tax liabilities.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

I also help business owners resolve their payroll tax problems.

The first strategy for any employee is to avoid being held personally liable for any unpaid payroll tax by the IRS. You do this by proving that while you may have had a fancy title, like “Executive Vice President”, you had no actual authority or responsibility over the preparation and filing of the payroll tax returns, processing of the weekly payroll or signing the employee’s payroll checks. You aren’t an owner and your position isn’t spoken to in the company by-laws and you have no “hire of fire” authority.

Once that’s cleared up the business has the same resolution options that are available to individuals who wish to address their tax liabilities:

  • Installment Payment Agreements (streamlined, regular or partial-pay)
  • Currently Not Collectible
  • Offer in Compromise (lump sum or deferred)

Another option is to threaten to shut the company down, make a “designated” payment to cover the “trust fund recovery penalty” and declare bankruptcy. While payroll tax liabilities are not dischargeable in bankruptcy, you may be able to work out a more reasonable payment plan with the IRS while in a Chapter 11 bankruptcy.

For a more detailed explanation of these resolution options, please contact me.

If your business is falling behind on paying your payroll taxes and filing payroll tax returns, please call me before the IRS finds you.  I can help.

Payroll Tax Liability Collection from Individuals

Payroll Tax Liability Collection from Individuals

In last week’s blog, here, I spoke about the actions that the IRS takes against a business to collect delinquent payroll taxes, known as “trust” taxes.

What makes payroll taxes different than federal income tax is that the IRS had the ability to collect delinquent payroll taxes not just from the business itself but also from individuals who are considered “responsible persons” due to their role in the business or their relationship with the business.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

I also help businesses that have delinquent payroll tax problems.

“Trust taxes” are the federal income tax, Social Security and Medicare taxes (FICA) withheld from each employee’s paycheck.

Internal Revenue Code section 6672 allows the Internal Revenue Service to recover “trust funds” withheld from employee’s pay from “any person required to collect, truthfully account for and pay over any tax imposed” and “who willfully fails to collect such tax or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof”. This code section also allows the IRS to assess a penalty, called the “Trust Fund Recovery Penalty”, equal to the amount of federal income tax, Social Security and Medicare tax (FICA) withheld from employee’s and not forwarded to the US Treasury.

 “Responsible persons” may include:

  • Business Owners
  • Partners
  • Financial Officer(s)
  • Outside accounting firm

Internal Revenue Code section 3505 allows the IRS to collect delinquent payroll taxes from third party lenders.  These companies lend money to businesses to cover payroll expenses and the business may not then pay the “trust taxes” to the government. In that case, the IRS attempts to collect from the lender. Unfortunately, family members who lend money to business owners to cover payroll expenses may get caught up in this if the loan is specifically for payroll and the business doesn’t forward the taxes withheld.

If your business is falling behind on paying your payroll taxes and filing payroll tax returns, please call me before the IRS finds you.  I can help.

Payroll Tax Assessment & Collection for Businesses

Payroll Tax Assessment & Collection for Businesses

As I mentioned in last week’s blog, here, “Struggling or failing businesses often use these funds (payroll tax withheld from employees) to pay their employees and vendors in order to stay open instead of sending the money to the government. Unscrupulous business owners embezzle the money to subsidize a lavish lifestyle”.

This occurs because it is tempting for a business owner with a cash flow problem to use these funds instead of going to the bank and asking for a loan.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

I also help businesses that have delinquent payroll tax problems.

The assessment and collection process for payroll tax liabilities is very similar to the process the IRS uses to collect delinquent federal income tax from individual taxpayers. The difference is that in addition to going after the business for payment of taxes, the IRS may also go after the business owners personally along with any other people, like management or the outside accounting firm that the IRS considers to be “responsible” for the non-payment of tax.

Here’s the IRS collection process for delinquent payroll taxes:

  • The IRS realizes the quarterly payroll tax returns (Form 941) aren’t filed or withholding isn’t forwarded to US Treasury
  • IRS requests filing of returns and payment of taxes withheld
  • If payment is not received a “silent lien” is issued against all business property and the collection letters become more aggressive
  • If more than $10,000 is owed the IRS will file a “Notice of Federal Tax Lien”
  • If there is still no response, then the IRS begins “levying” the business. A levy is an actual “taking”, like emptying out the company bank account or attaching all receivables from clients and vendors.

In next week’s blog I will go into more detail about Internal Revenue Code Sections 6672 and 3505 which allows the IRS to collect delinquent payroll taxes from “responsible persons” in and associated with the business who exhibit a willful and intentional disregard for the tax laws.

If your business is falling behind on paying your payroll taxes and filing payroll tax returns, please call me before the IRS finds you. I can help.
Don’t be their next press release.

Introduction to Payroll Tax Liabilities

Introduction to Payroll Tax Liabilities

When I do presentations at local business networking meetings, I am frequently asked these questions by people with significant tax liabilities:

  • What are my chances of being audited?
  • Am I going to lose my house?
  • Could I go to jail?

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Over the next several weeks I will be writing a series of blogs on the resolution of payroll tax liabilities for businesses and their owners.

I have been told by experienced IRS collections officers that 75% of their large collection cases involve businesses that don’t forward payroll tax withholdings taken from employee’s wages to the federal government.

The Social Security and Medicare (FICA) taxes along with the federal income tax withheld from employees are considered “trust taxes” because the government “trusts” that a business will withhold them and then forward them to the US Treasury on a timely basis.

About 70% of the US government’s tax receipts are collected through payroll withholding.
Struggling or failing businesses often use these funds to pay their employees and vendors in order to stay open instead of sending the money to the government. Unscrupulous business owners embezzle the money to subsidize a lavish lifestyle.

Here is a link to a press release issued by the Tax Division of the US Justice Department regarding one of these cases:
https://www.justice.gov/opa/pr/west-virginian-business-owners-sentenced-prison-failing-pay-employment-and-individual-income

If your business is falling behind on paying your payroll taxes and filing payroll tax returns, please call me before the IRS finds you. I can help.
Don’t be their next press release.

IRS Collection Enforcement Update

IRS Collection Enforcement Update

In late 2018, the IRS got a new commissioner, Charles (Chuck) Rettig and he has recently appointed Eric Hylton as the head of the “Small Business/Self-Employed” Division of the IRS.

The significance of Mr. Hylton’s appointment is that he used to be the Deputy Chief of the IRS Criminal Investigation Division.

Both Commissioners Rettig and Hylton emphasized at a recent American Bar Association meeting in Las Vegas that, “IRS collection enforcement is back with a capital E”.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Currently there are fifteen (15) million taxpayers that are in “collection inventory” with the IRS. The IRS has identified another seven (7) million non-filing taxpayers that they will be contacting shortly.

“Big data” isn’t just the province of FaceBook, Google and credit card companies any more. The IRS is using it to identify non-filers, fraudulent tax preparers and payroll tax cheats.

In the past, if you thought that not filing a tax return meant that the IRS won’t know where you are, think again.

If you have years of unfiled tax returns or owe money to the IRS, please call me before the IRS finds you.  I can help.

Discharging Federal Income Taxes in Bankruptcy

Discharging Federal Income Taxes in Bankruptcy

Believe it or not, you may be able to discharge your federal tax debts in bankruptcy. There are some specific rules and timelines that must be followed to qualify.In this blog I am referring specifically to what is known as a Chapter 7 bankruptcy filing which is a liquidation of debts available to individuals.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Federal income taxes may be eligible for discharge in bankruptcy if the following conditions are met:

  • The due date of the tax return for that tax year (including extension) is not less than three (3) years prior to bankruptcy filing date
  • The tax return was filed at least two (2) years prior to bankruptcy filing date
  • Any additional tax assessments due to audit or amendment occurred at least 240 days prior to bankruptcy filing
  • You can’t discharge a tax debt for a year that tax may still be assessed – under audit
  • An actual tax return must have been filed – no substitute for return (SFR) allowed
  • No fraud or willful tax evasion has occurred

Federal income taxes that are not eligible for discharge are those for tax years that are within the 3 year/2 year/240 day timelines, tax years that still may have future assessments, tax years for which an actual return has never been filed or where fraud or willful tax evasion has occurred.

Other taxes that may not be discharged in bankruptcy are called “trust fund” taxes. These refer to payroll, sales and excise taxes. They are called “trust” taxes because employers withhold payroll taxes from W-2 employees and are required to forward these taxes to the US Treasury.

Businesses collect sales and excise taxes from their customers and are required to file sales and excise tax returns and forward the tax to the appropriate federal or state and local taxing authority.

Failure to do so is a violation of the law. These taxes may be “compromised” with an “offer” but not discharged in bankruptcy.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.