Facing IRS or State Payroll Tax Issues
Written By: Martha De la chaussee, Former IRS Collection Officer, Tax & Business Consultant.
Taxpayers are unaware of the IRS Revenue Officer requirement to address the following items in every case they are assigned to resolve inorder to be effective in resolution and to meet the required standards of performance.
a. Identify cause of the deliquency. What is the tax issue that created the case assignment.?Was the tax audit due to unreported income, disallowed expenses or other adjustments that created a tax debt? Tax debt due to other reason such as an unfiled tax return for which the IRS itself created the tax return under IRC 6020(b).?
Thus as a taxpayer, you need to request information on the cause of the tax issue. Request account transcript for tax debts. For audits, make sure you have copies of the initial audit report and final audit report for comparison and your tax professional who will represent you.
b. Compliance: Taxpayer(s) must be in compliance with current year(s) tax return filings, paying of estimated tax payments for self-employed individuals, federal tax deposits current for current payroll, tax withholdings for employees correct to prevent future tax debt and more.
c. Cross Compliance for entities owned by taxpayers such as sole proprietorships, Corporations, LLCs, LLPs, Non-Profits that they control, and others. Current as indicated above for these entities as well.
d. Cure. The IRS and State tax auditors and collectors need to address all the tax resolution options availabe to resolve their cases. This may include seizure/sale of businesses and other assets of the tax debtors if no alternatives are available. Or, the tax debtor refuses to comply with securing loans or sell their assets with equity to reduce or full pay the tax debts.
When a business is facing IRS payroll tax challenges, taking immediate and strategic actions is crucial to mitigate potential consequences and resolve the issues efficiently. Here are the immediate actions businesses should consider:
1. Review the Notice and Deadlines:
· Carefully review any notices or correspondence from the IRS regarding the payroll tax issue. Is it an audit notice or tax debt notice? Who sent it? Cause of
the debt if known. Request account transcripts for tax debt.
· Take note of deadlines for response or providing requested information.
· Determine if it is better to hire a tax audit or debt resolution professional.
I would not attend or talk to the IRS auditor or collector by myself unless I know the processes, procedures, Internal Revenue Code, or consequences for providing more information than required to the IRS. Furthermore, what options do you have in resolving your tax audit or debt. Appealing, tax court, adjustments, or any of the more than thirty processes and procedures available.
2. Gather Documentation:
· Collect all relevant documents related to payroll tax filings, including payroll records, tax returns, W-2 and 1099 forms, and any correspondence with the IRS.
· If your business is not current with payroll tax deposits with the current payroll quarter. Start paying now and stay current. If you are not current with FTDs or State payments for the current quarter. The tax agencies will not consider any alternative options such as installment agreements, adjustments, or offers in compromise. No negotiation unless the entity in question is current.
· Make sure all unfiled tax returns are filed immediately by sending them to usual address you file tax returns for the entity or individual.
· Organize the documentation in a systematic manner to facilitate the resolution process. Use tabs to separate the different documents.
NOTE: Credit card statements are not sufficient to prove an expense for this does not verify what was purchased and for what reason or use. Business vs personal item.
3. Consult with a Tax Professional:
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· Seek advice from a qualified tax professional, such as a CPA or tax attorney, who has experience in dealing with IRS or State payroll tax issues.
· A tax professional can assess the situation, provide guidance on the best course of action, and represent the business in communications with the IRS. You as the owner, officer, partner, member of the entity do not have to talk to the government employees once you provide a Power of Attorney to a tax professional who will represent you.
4. Respond to IRS Notices Promptly:
· Adhere to any deadlines specified in IRS notices or correspondence. Call the IRS or State auditor or collector and inform them that you are hiring a tax professional to represent you and provide you with an extension for you to comply.
· Provide requested information or documentation to the IRS in a timely manner to avoid escalation of the issue thru your representative. You can hire someone just to help you with advice on documents and information to submit. Although, it is best to hire them for resolution of the tax issues from the beginning. Otherwise, it could cost you more in hourly rates if you piece meal the process. Tax Professionals do not like to piece meal client cases for it takes reanalyzing the case every time a part-time client comes back for more advice to resolve their case.
5. Evaluate Cash Flow and Financial Resources:
· Assess the business’s cash flow and financial resources to determine its ability to pay any outstanding payroll taxes, penalties, or interest. Penalties and interest are not straight interest accruals. Accruals are compounded daily for interest.
· Explore options for financing or restructuring existing debts to address IRS payroll tax liabilities. Do you or any of the individual owners have equity in assets, can you factor accounts receivable to pay. If an audit, do you know how to read the audit report and respond in an effective manner to the tax law or process that is being implemented to determine payroll taxes according to the audit report?
6. Communicate with the IRS:
· Maintain open and transparent communication with the IRS throughout the resolution process.
· Respond promptly to IRS inquiries and requests for information, and keep records of all communications with the IRS.
7. Explore Relief Options:
· Investigate potential relief options available through the IRS, such as installment agreements, offers in compromise, or penalty abatement programs. If you do not know the various installment agreement options, offer in compromise process and requirements prior to submission, penalty abatement programs available for your case. Get professional assistance.
· Determine eligibility for relief programs and work with your tax professional to pursue the most favorable options for resolving the payroll tax issue.
8. Implement Corrective Measures:
· Identify any underlying issues or deficiencies in payroll tax compliance processes and procedures.
· Implement corrective measures to ensure future compliance with IRS payroll tax requirements, such as updating payroll systems, improving record-keeping practices, or providing employee training on payroll tax matters.
9. Document Everything:
· Keep detailed records of all actions taken to address the IRS payroll tax issue, including communications with the IRS, financial transactions, and compliance efforts.
· Maintain documentation of any agreements or resolutions reached with the IRS for future reference.
· If the IRS payroll tax issue involves complex issues or potential disputes, consider seeking advice from a Tax Attorney, CPA or Enrolled Agent who can provide representation and advocacy on behalf of the business.
By taking these immediate actions and seeking professional guidance as needed, businesses can effectively address IRS payroll tax challenges and work towards a resolution that minimizes financial impact and preserves your financial stability.
