1. WHAT ARE PAYROLL TAX PROBLEMS
Clients often come to us who have unpaid payroll tax problems. These payroll tax problems come in several varieties. For example:
- Didn’t file Form 941 tax returns for various quarters.
- Didn’t file Form 940 tax returns for various years.
- Did file the required IRS payroll tax returns, but didn’t have the money to pay the tax.
2. SOME ROOT CAUSES OF UNPAID PAYROLL TAXES
A client’s failure to file their payroll tax returns or to pay their payroll taxes usually come about because of one, or more, of the following reasons:
- Low business profits causes the employer to spend the money set aside for taxes.
- Low business profits cause the employer not to set aside enough money for taxes.
- Poor bookkeeping causes the employer to accidentally spend the tax money.
- A spouse, or a business associate, either runs off with the tax money or doesn’t pay it to the IRS on time.
- The employer intentional tries to hide or avoid paying the payroll tax.
3. UNDERSTANDING THE IRS’ ATTITUDE TOWARD TAXPAYERS WITH UNPAID PAYROLL TAXES
To say the least, the IRS attitude toward taxpayers who owe taxes is never “friendly”. Their job is to collect the tax from you, and they will do whatever it takes to legally get the job done.
But when you owe payroll taxes, the IRS becomes very aggressive. The IRS puts a lot of pressure on business owners to pay past due payroll taxes.
The IRS’ attitude toward you goes something like this:
- There is NEVER any circumstance in life that should keep you from paying your payroll taxes.
- If you owe payroll taxes you are probably untrustworthy at best, and a scoundrel at worst.
- You may actually be a thief. Why? Because you have used, and owe, money that belonged to your employee, not to you.
Caution! They may try to put you out of business. By causing you to shut your business’ doors for good, they believe they are doing you, and the IRS, a favor. Why? Because they are helping you not owe any more payroll taxes that you can’t pay on time.
They will use ALL the weapons in their arsenal to collect the money you owe them, including seizing business and personal assets. Be very aware that they don’t care about what happens to you or your business, just as long as they get their money.
Laws, written to greatly favor the IRS, prevent you from filing bankruptcy against payroll taxes. This means that you can’t get rid of payroll taxes simply by filing bankruptcy.
4. KNOWING THE IRS’ SPECIAL RULES FOR SETTLING PAYROLL TAXES
Special IRS rules apply if a client wants to file an “Offer in Compromise” on payroll taxes. An Offer in Compromise is when you pay less than you owe to settle your tax debt. Sometimes you can settle for a lot less than you owe, and the IRS still considers it “paid in full”.
Special rules that apply:
- You must be current with your Form 941 payroll tax payments for at least two quarters before the Offer is filed.
- You should have filed your most recent tax year’s Form 941 tax return.
- You should have filed your most recent Form 1040 for the most recent tax year.
They prefer that the business be completely shut down if there is a history of not paying payroll taxes and not filing tax returns. While this is not a true legal requirement, clients should realize that, if possible, it may be very beneficial to close the business while the Offer is being negotiated with the IRS.
After an Offer has been accepted by the IRS, you must file all required tax returns and pay All required taxes, for at least five years. If you don’t then the Offer will be revoked and the IRS will begin collecting the entire tax amount originally due, PLUS interest and penalties.
5. DEALING WITH THE STRESS OF FACING THE IRS
Owing tax to the IRS is very stressful, but business owners who owe payroll taxes face even greater stresses. These additional stress factors include:
- Having to operate your own business and raise money to pay the back taxes.
- Having to juggle paying business and personal expenses with potentially decreased money.
- Having to pay current payroll tax and file the tax returns – on time, every time.
- Pressure from very aggressive IRS collection folks, who don’t understand how tough it is to run a business
- Perhaps the greatest stress of all for some is the stress of trying to keep your marriage from falling apart due to these extra stresses.
6. STEPS YOU MUST TAKE TO PREPARE TO DEAL WITH THE IRS
Certain steps must be taken in almost every case when beginning to defend a Client against the IRS.
These steps include obtaining the following information and documents from the Client:
- Obtain an up to date Income & Expense Statement for the business, if it is still in business.
- Obtain a completed IRS Form 433-B on the business to determine what assets it has.
- Obtain a completed IRS Form 433-A on the business owners personal finances to determine what income, expenses and assets the Client may have.
- Obtain a very detailed budget form for the Client’s personal expenses.
- Make sure that Client’s business has filed its most recent Form 941, Form 940, and Form 1120 if needed.
- Make sure that Client has filed his most recent tax year’s Form 1040.
- Obtain copies of the most recent tax year’s IRS Form 1120 for the business if it is a corporation.
7. DEVELOPING A GAME PLAN TO SOLVE YOUR TAX PROBLEM
Once the Client’s financial information has been complied by my office, we will begin to analyze it. We do the analysis in order to accomplish several goals:
Obtain the IRS’ own internal information on Client. This special IRS internal information shows us all of the Client’s tax debts, important dates such as when tax returns were filed, and which tax returns the IRS believes, rightly or wrongly, have not yet been filed.
We attempt to stop any IRS collection action, such asgarnishments or the placement of liens on any business or personal assets.
We may set up an Installment Agreement, which is an IRS monthly payment plan. We may do this even if we are going to settle with the IRS for a smaller amount of money by filing an Offer in Compromise, which is an IRS settlement offer.
We must become very well-acquainted with your financial facts so we can determine if you are a good candidate for an Offer in Compromise. An Offer is where you settle with the IRS for less than the amount of taxes you owe, sometimes much less.
8. CONCLUSIONS YOU SHOULD REACH IF YOU ARE SERIOUS ABOUT SOLVING YOUR TAX PROBLEM
The best way to deal with a payroll tax problem is to NOT ignore it. Just like with rotten vegetables, unpaid taxes don’t get better just because you put them into a dark closet. You must:
- Reach down within yourself and get the courage to face up to your problem.
- Deal with your problem sooner, rather than later.
- Try to develop a workable plan to deal with your problem, both now and in the future
- Hire a tax professional who can advise you each step of the way
- Have someone, preferably a tax professional, who will be an emotional buffer between you and the IRS, so that you don’t ever have to talk or meet with the IRS.
Realize that there is a lot at stake here, and only hire a true licensed tax professional, who can verify that he/she has the experience (and guts) necessary to aggressively defend payroll tax clients.
Make sure that your licensed tax representative has defended clients, just like yourself, a large number of times. Unfortunately, hiring a local accountant or CPA just won’t do. You don’t want them to use your case to learn on. Let them learn on someone else.
9. TAKE ACTION
Forcing yourself to action may the be the hardest step of all. You must:
- Deal with your problem — Don’t ignore it.
- Only YOU can start the process of dealing with the IRS — START TODAY.
- Try to get a good night’s sleep. When you go to bed at night, try to sleep. Try to stop your mind from thinking about just your tax problem.
- Get out of bed in the morning. When you wake up in the morning and you want to just pull the bed covers over your head, don’t do it. Jump up and take action.
- Don’t forget to still spend quantity time with your family through the crisis time. You’ll need this time to recharge your mind and body. Plus your wife and children still need you to.