{I am working away on the last of the GD extensions and fellow tax blogger Michael Rozbruch, Certified Tax Resolution Specialist (CTRS), licensed CPA, founder of Tax Resolution Services, and author of the TAX RESOLUTION UNIVERSITY BLOG, has stepped in to help me out with another quest post in my recurring series on "Best Tax Advice" with a post on dealing with tax problems – rdf}
.
MY BEST TAX ADVICE FOR SMALL BUSINESSES WITH PAYROLL TAX PROBLEMS
MY BEST TAX ADVICE FOR SMALL BUSINESSES WITH PAYROLL TAX PROBLEMS
by Michael Rozbruch
,
If you owe payroll taxes, get help quick before it's too late! If you plan to go it alone, know that you will get clobbered, or even worse (lose your freedom), without expert and proper representation. You are way out of your league on this one! You REQUIRE experienced Tax Attorneys and/or a Certified Tax Resolution Specialist who has handled hundreds of these cases.
If you owe payroll taxes, get help quick before it's too late! If you plan to go it alone, know that you will get clobbered, or even worse (lose your freedom), without expert and proper representation. You are way out of your league on this one! You REQUIRE experienced Tax Attorneys and/or a Certified Tax Resolution Specialist who has handled hundreds of these cases.
.
Generally, owing payroll taxes is the "kiss of death" for many small business owners, whether they operate their entities as a sole proprietorships, corporations ("C" or "S" - doesn't matter) or LLCs. Many lose their businesses.
Generally, owing payroll taxes is the "kiss of death" for many small business owners, whether they operate their entities as a sole proprietorships, corporations ("C" or "S" - doesn't matter) or LLCs. Many lose their businesses.
.
The penalties add up to about 33% PLUS interest in just 16 days after you have filed the 941 (payroll Tax Return) past the due date and didn't pay!
The penalties add up to about 33% PLUS interest in just 16 days after you have filed the 941 (payroll Tax Return) past the due date and didn't pay!
.
YOUR PAYROLL TAX DEBT WILL ADD UP QUICKLY!
YOUR PAYROLL TAX DEBT WILL ADD UP QUICKLY!
.
You can imagine what the debt adds up to if you ignore this for prolonged period of time. There are three major penalties that cause this: The failure to file penalty, the failure to deposit penalty and the failure to pay penalty. The IRS is referring many more of these type of cases to their Criminal Investigation Division and ultimately to the Department of Justice.
You can imagine what the debt adds up to if you ignore this for prolonged period of time. There are three major penalties that cause this: The failure to file penalty, the failure to deposit penalty and the failure to pay penalty. The IRS is referring many more of these type of cases to their Criminal Investigation Division and ultimately to the Department of Justice.
.
Why you ask? If the IRS can prove that you were willful and intentionally (very low thresholds) didn't file and/or pay it may be considered a federal crime. Payroll tax is a "trust" tax, meaning the money (the employees federal withhold tax and the employees share of FICA and Medicare (Social Security) does not belong to the business. The business is supposed to account for, hold, and pay over to the government on a timetable determined by the amount of the company's payroll. Many small business and mid-size businesses use this (the government's) money to pay rent, keep the lights on, pay vendors, net payrolls, etc. This is against the law. In addition, there is something very wrong with the business model of these firms.
Why you ask? If the IRS can prove that you were willful and intentionally (very low thresholds) didn't file and/or pay it may be considered a federal crime. Payroll tax is a "trust" tax, meaning the money (the employees federal withhold tax and the employees share of FICA and Medicare (Social Security) does not belong to the business. The business is supposed to account for, hold, and pay over to the government on a timetable determined by the amount of the company's payroll. Many small business and mid-size businesses use this (the government's) money to pay rent, keep the lights on, pay vendors, net payrolls, etc. This is against the law. In addition, there is something very wrong with the business model of these firms.
.
Generally, one must make a federal tax deposit (by tax filing service, phone, or in person at a bank) 3 days after the pay date of the pay roll checks.
Generally, one must make a federal tax deposit (by tax filing service, phone, or in person at a bank) 3 days after the pay date of the pay roll checks.
.
THE IRS CAN ASSESS BUSINESS OWNERS AND SHAREHOLDERS INDIVIDUALLY WITH ADDITIONAL PENALTIES!
THE IRS CAN ASSESS BUSINESS OWNERS AND SHAREHOLDERS INDIVIDUALLY WITH ADDITIONAL PENALTIES!
.
The IRS is the only creditor on the planet that can "pierce" the corporate veil, if payroll taxes are owed, and go after the owners/shareholders/members individually. They do this by assessing what's commonly referred to as the "Trust Fund Recovery Penalty" (TFRP). However, this phrase is misleading. The "penalty" is the principal amount of tax that should have been paid over to the government; it includes the federal withheld tax from the employees as well as their share of social security. So you see, it really is not a penalty, as generally defined, at all. Normally this amounts to about 60% to 75% of what the corporation is liable for. The IRS also takes a "shot gun" approach in assessing this tax against the shareholders or owners. If there are 4 owners/shareholders and a controller, bookkeeper or even secretary (non-shareholder) who happened to sign pay roll checks, Payroll Tax Returns and/or directed who got paid (ahead of the payroll taxes), they will assess everyone separately and go after them all until they reach the TFRP total amount owed to the IRS.
The IRS is the only creditor on the planet that can "pierce" the corporate veil, if payroll taxes are owed, and go after the owners/shareholders/members individually. They do this by assessing what's commonly referred to as the "Trust Fund Recovery Penalty" (TFRP). However, this phrase is misleading. The "penalty" is the principal amount of tax that should have been paid over to the government; it includes the federal withheld tax from the employees as well as their share of social security. So you see, it really is not a penalty, as generally defined, at all. Normally this amounts to about 60% to 75% of what the corporation is liable for. The IRS also takes a "shot gun" approach in assessing this tax against the shareholders or owners. If there are 4 owners/shareholders and a controller, bookkeeper or even secretary (non-shareholder) who happened to sign pay roll checks, Payroll Tax Returns and/or directed who got paid (ahead of the payroll taxes), they will assess everyone separately and go after them all until they reach the TFRP total amount owed to the IRS.
.
WHAT DO I DO IF I GET AUDITED?
WHAT DO I DO IF I GET AUDITED?
.
Some of the options we employ to defend against this include, but are in no way limited to, 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. We also advise clients, in certain circumstances, to "walk away" (only if it is a corporation) from their businesses and start over. Starting over means selling (not transferring) "oldco"'s assets. When this is advised, and there are assets involved there needs to be a formal buy/sell agreement between "Oldco" and "Newco" Any monetary consideration, of course, would go toward paying down/off the TFRP. If the new company gets into payroll tax problems you will be pursued by the IRS's Criminal Investigation Division for sure.
Some of the options we employ to defend against this include, but are in no way limited to, 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. We also advise clients, in certain circumstances, to "walk away" (only if it is a corporation) from their businesses and start over. Starting over means selling (not transferring) "oldco"'s assets. When this is advised, and there are assets involved there needs to be a formal buy/sell agreement between "Oldco" and "Newco" Any monetary consideration, of course, would go toward paying down/off the TFRP. If the new company gets into payroll tax problems you will be pursued by the IRS's Criminal Investigation Division for sure.
.
The way to think about why the IRS gets so ticked off when it comes to payroll taxes is this: At the end of the year the employer gives the employee a W-2. Included in that W-2 is the amount of federal withheld tax and social security tax that was "paid" (taken out of their check) by the employer. So the employee gets credit for this money and may even wind up with a refund check being issued by the IRS. Meantime, the employer NEVER paid in these amounts that were supposedly credited toward the employee, so the government is out TWICE! Once when they allow the W-2 withholding credits to the employee and again when the IRS gets stiffed from the employer.
The way to think about why the IRS gets so ticked off when it comes to payroll taxes is this: At the end of the year the employer gives the employee a W-2. Included in that W-2 is the amount of federal withheld tax and social security tax that was "paid" (taken out of their check) by the employer. So the employee gets credit for this money and may even wind up with a refund check being issued by the IRS. Meantime, the employer NEVER paid in these amounts that were supposedly credited toward the employee, so the government is out TWICE! Once when they allow the W-2 withholding credits to the employee and again when the IRS gets stiffed from the employer.
.
For more advice and information on payroll tax debt and how to get professional help if you’re in trouble with the IRS, visit the Tax Resolution Services web site for a free consultation or check out the Tax Resolution University Blog.
{Thanks, Michael, for the good advice! rdf}
For more advice and information on payroll tax debt and how to get professional help if you’re in trouble with the IRS, visit the Tax Resolution Services web site for a free consultation or check out the Tax Resolution University Blog.
{Thanks, Michael, for the good advice! rdf}
TTFN
FYI - Today is the first day of my 56th year! I began preparing 1040s professionally at age 18.
1 comment:
This is excellent information for small business owners. They also need to keep their corporate records ship-shape and this isn't that complicated with CVP
Thanks for the info on the Trust Fund Recovery...
Rob
Post a Comment