What a Payroll Tax Resolution is and what it means for you
Payroll Tax Resolution: The Process Can Start Today
In the U.S., payroll taxes are assessed by the federal government and compliance is enforced by the Internal Revenue Services (IRS). Payroll tax, if managed incorrectly or inappropriately, can end in liens, seizures and in more serious cases, time in prison.
Income tax withholding, including Social Security, Medicare and unemployment taxes are crucial for the running of any successful business. These items must be accounted for, filed and paid promptly to avoid the chance of suffering severe IRS penalties, a huge tax debt or a federal criminal investigation.
If you own a business and have employees, IRS form 941 is something you ought to be well aware of for the calculation and remittance of payroll tax documentation the IRS requires. Payroll tax problems with the IRS often begin with lack of proper documentation and calculation, leading to taxes going unpaid.
Payroll tax money does not belong to your business. Taxes must be accounted for and paid to the government. Failing to do so or bridging income shortcomings through use of payroll tax money are other common reason businesses incur the wrath of the IRS.
Owing Payroll Taxes is Serious
Payroll tax resolution begins with recognition. The earlier the better as tax issues compound. Those that wait to take the initiative risk incurring a ballooned amount as the IRS may not contact you right away, all the while penalties against you or your business will start to accumulate. Those penalties result in interest accrued and can increase exponentially unless a payment solution is created to remedy the problem.
Anyone involved in the business who is deemed responsible for the decision to not pay the IRS can be held financially liable as per Internal Revenue Code Section 6672. The ensuing sanction is known as the Trust Fund Recovery Penalty (TFRP).
Essentially, if you are responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes and then subsequently, under your own will, fail to collect or pay them, you will be assessed the TFRP.
The amount owing will be commensurate with the amount of payroll tax still outstanding. The penalty is thus computed based on the unpaid income taxes withheld, plus the employee’s portion of the withheld FICA taxes.
If the IRS determines that you are the person responsible, it will send a letter stating its plan to assess the TFRP against you. You then have 60 days (75 days if this letter is addressed to you outside the United States) from the date of the letter to appeal. The letter will explain appeal rights but you will be left to manage the process and available resolutions. If no response is made, the IRS will assess the penalty against you and send you a Notice and Demand for Payment.
Once the penalty is asserted, the IRS can take collection action against your personal assets. For instance, it can file a federal tax lien or take levy or seizure action. The worst case scenario if you are a business owner is of course the IRS closing down your business and initiating a sell-off of assets to pay the debt owed to them.
Simply put, the tax collection agency views unpaid taxes as theft from employees and the government. The business is supposed to be withholding income and employment taxes in trust, until a federal deposit is made. Not providing taxes that were withheld from employees is stealing and a serious allegation.
Defense of the penalty will involve proving you had no control over the company’s finances, or, conversely, while you may or may not be liable, you are deemed ‘uncollectible’, which essentially means you are financially unable to pay. This is just one possibility and one scenario; there are more.
Moving Toward Resolution
By law, as per Internal Revenue Code Section 6519, any debts owed to the IRS can be paid back via an installment agreement, either in full or in a partial payment agreement plan.
There is a program called the IRS Fresh Start Program, which holds a threshold for installment agreements up to $50,000.
Individuals who fall into this bracket are able to enter into an installment agreement without having to submit any financial documents. Furthermore, if the individual requesting the agreement is found to have financial constrictions, the period to pay back the debt can increase from five years to six overall, allowing some flexibility.
Partial pay installment agreements offer a viable alternative to the IRS’ offer in compromise program and is a means to settlement and resolution. Essentially, a partial payment agreement will result in repaying the IRS less than what you owe.
In comparison, an offer in compromise (OIC), while another solution toward settling payroll tax problems with the IRS, is a much lengthier process that involves much more documentation. An OIC can take months, even years, to be processed, investigated, and accepted by the IRS.
From OIC to CNC
The standard IRS offer in compromise processing time is four to six months. That means it could be up to half a year until your file is assigned an investigator. After an investigator has been given your case, it can take, on average, three to six months for the investigation to be completed.
If your offer is initially rejected and you disagree, you can attach another four to six months for the IRS appeal process on your rejection.
If your offer is accepted it will still have to be reviewed and accepted by the agency’s counsel, ultimately leading to more time added to the resolution, which is roughly two to three months. Further, following the entire offer in compromise process, you will be assigned a five-year probationary period, which means you must stay current on every future tax filing and payment obligation or otherwise risk losing all that effort and consequently defaulting.
Finally, there’s the option of pursuing a status called currently not collectible (CNC). Simply put, CNC status occurs when the IRS comes to the decision that you cannot afford to repay the debt, or doing so would create economic hardship.
To walk this avenue, a financial statement must be provided to the IRS listing your household income as well as your monthly living expenses. Entering into CNC status does require substantial proof on the debtor’s behalf, however such classification would lead to the IRS leaving you alone.
Forms Are Essential
It is important to understand the breadth of your company’s business taxes.
Consulting a lawyer or accredited tax professional is the best course of action to ensure fulfillment of requisite tax documents, from form 940 to 1120S. Elsewise, there is no other way for the IRS to track your information and progress.
When dealing with payroll tax resolutions, it typically begins with IRS form 941, which has to do with an employer’s quarterly tax return. If this form is not filed, has been filed incorrectly or with erroneous information, an employer runs the risk of having to battle the IRS for unpaid taxes.
While handling your own case is not without question, expert guidance and timely solutions are the safest options to navigate through the complexities of the tax landscape.
You have options. The choices available are restricted to the tax situation you are in, but deciding on using a professional for help is the next best thing besides not getting yourself in such a predicament.
It is typical to be assessed for unpaid taxes via the trust fund penalty regulations. If your business is involved in payroll tax issues it is important to review personal transcripts as well ensure the trust fund penalty has not already been assessed.
It is also important to note that setting up a payment plan with the IRS does not extend the agency’s period to collect, it does however place your file or account into a compliant status thereby alleviating some of the duress that could be faced by aggressive IRS collection tactics.
Also, when it comes to your business, it must be “compliant” before you can begin to remedy the problem. Compliance means all business tax returns must be filed, including corporate and payroll tax returns and, at the very least, the last two quarters of business taxes must be paid in full.
Business IRS payment plans run a spectrum of options, such as a streamlined IRS payment plan, in-business trust fund express plan as well as regular routine and partial payment plans.
For the most detailed review and options available to you, please call 877-999-0486 today. We offer free consultations and trusted advice.
Don’t Forget …
Get all of your pertinent documents, including notices and anything else you have in relation to the IRS and/or payroll tax issue. Call or submit to Curadebt for a free evaluation and consider time is of the essence.
Levies and garnishments are real and the problem will not go away if ignored, in fact, it will compound and deepen the hole. As difficult as the situation currently sits, not managing it immediately or soon only worsens the conditions for resolution.