IRS Payroll Tax Collections
IRS Payroll taxes often create the biggest problems for small business owners. There are numerous separate tax returns and filing requirements associated with having employees and serious consequences if payroll taxes are not deposited in a timely manner.
Payroll Taxes for Employers
Payroll taxes are defined as the income taxes, Social Security, and Medicare taxes that are withheld from the wages of its employees. These are also commonly referred to as “Trust Fund” taxes because the employer is supposed to hold these funds in trust before turning them over to the IRS.
Employers face stringent obligations when it comes to their employees and their payroll tax obligations. Employers must make quarterly tax deposits to the IRS and complete a series of quarterly and annual filings to account for all payroll taxes withheld and deposited from the employers trust.
Outstanding Payroll Tax Liabilities
Failure to properly account for a company’s payroll tax obligations or failure to properly deposit them with the IRS is considered a serious violation by the Service. IRS enforcement efforts have steadily increased over the past several years with respect to those who violate the payroll tax laws.
In some cases, the IRS has even started prosecuting people through its Criminal Investigations Division for failure to meet their payroll tax requirements (payroll tax evasion).
Too often we have seen business owners having cash flow issues fail to meet their payroll tax obligations, which can lead to disastrous consequences for the business. Utilizing IRS payroll tax deposits for other business expenses often creates a snowball effect and causes serious problems for the client business. The IRS is much less lenient with paying back payroll tax obligations than with other types of liabilities.
In addition, because businesses are usually fruitful sources of assets that the Service can go after (and going businesses are usually generating positive cash flow), IRS revenue officers have been known to be particularly aggressive when it comes to dealing with outstanding payroll tax liabilities.
High Contract Labor Deductions
IRS payroll tax issues do not just stop with timely filings and deposits. Especially when it comes to certain industries, the IRS has a long history of targeting businesses with high contract labor deductions and may subject these businesses to an independent contractor audit. An independent contractor audit is an audit of the business’s workers to determine their status as employees/contractors.
If an employer hires contractors that are later considered by the IRS to be employees, the business will be responsible for all the Social Security and Medicare taxes associated with the “employee” for the duration of their employment. Employer liability is often substantial for independent contractor misclassification, particularly if the audit extends to multiple employees and for multiple years.
Furthermore, there is a huge grey area that surrounds the regulations regarding if an employee is or is not an independent contractor. It is critical to seek the counsel of a qualified tax attorney if you are ever notified that you will be subjected to an independent contractor audit. Such audits are likely to increase now more than ever with the implementation of the Affordable Care Act.
Intricacies of Payroll Taxes
IRS payroll tax matters also have a number of intricacies that taxpayers need to be made aware of.
- The IRS will insist on streamlined payroll tax payment plans paid off within twenty-four months, not the usual sixty or seventy-two months that individuals are allotted.
- The IRS will usually insist on a financial statement in most cases with businesses.
- Because there is no streamlined financial statement for business, like the IRS Form 433-F for individuals, businesses will have to fill out an IRS Form 433-B.
- Form 433-B is by far the most complex financial statement and has several parts that can trip up taxpayers if they are not careful.
- Form 433-B requires several attachments and, in my experience, revenue officers will ask for a great deal more information from a business than from an individual taxpayer.
- Information/document requests for businesses are usually quite voluminous, but can be negotiated down with the help of a skilled representative.
- Some taxpayers have a hard time dealing with the nature of the disclosures required by businesses pursued by a revenue officer. They feel very uncomfortable having the IRS that involved in their business operations (again, tax counsel can help negotiate the nature and the extent of those disclosures).
Payroll Tax Collections
The IRS takes a particularly aggressive approach when it comes to going after business taxpayers that fail to remit payroll tax deposits. IRS payroll tax is aggressive, due in large part to the ramifications of businesses not submitting the taxes they are withholding.
Those taxes represent all of an employee’s Federal Income tax, Social Security tax, and Medicare tax along with the employer’s contributions. Because of the low probability of collecting those taxes from a business that is no longer operational (hence one of the underlying reasons for the Trust Fund Recovery Penalty), the IRS goes after payroll tax balances with more vigor and is less lenient with companies that fail to submit them in a timely manner.
There are significant differences between an individual balance due and a balance due that is administered by IRS payroll tax collections. Unlike the majority of collections cases, which will usually stay with the Automated Collections System, payroll tax matters usually will go to a revenue officer much faster.
Businesses generally are easier targets for the IRS because they usually generate profit that the IRS can direct toward the liability and have assets that can be seized or sold to pay the balance due. Also, unlike individual accounts, the IRS is not bound by reasonable living standards or many of the other limitations that Congress has placed on individual accounts.
Thus, revenue officers generally have more latitude to pursue delinquent payroll tax accounts than with individuals.
Brotman Law Can Help
Brotman Law is particularly adept to handling the needs of businesses dealing with IRS payroll tax issues. We handle all payroll tax issues seriously and give them the deference they deserve because of the potential risk to our clients.
Whether you have failed to make proper payroll tax deposits or are the target of an independent contractor audit, we perform a detailed review of the facts and circumstances surrounding your liability in our initial. Then and only then do we help formulate a customized strategy for resolution.
Throughout the payroll tax resolution process, we keep in mind the needs of our client business and pay special attention to protecting their assets from the IRS. Our comprehensive payroll tax defense is top notch and as cost effective as possible to our clients.