HANDLING PAYROLL TAX LIABILITY
Collecting Form 941 payroll taxes is among the Internal Revenue Service’s top priorities. The government is committed to collecting all taxes withheld from employees’ paychecks and will fully enforce collection actions to find and collect all unpaid payroll taxes. This means:
- AUDITS: If the IRS suspects that your company has unreported payroll tax, the government will audit your records for accuracy. These payroll tax audits may include determining whether you correctly reported your workers as “Independent Contractors” instead of employees.
- PENALTIES: If the IRS determines that your company has unreported payroll taxes, the IRS will significantly penalize your company for failing to report and failing to pay that tax.
- LIENS & LEVIES: If your company has unpaid taxes and owes back payroll taxes, the IRS will more aggressively pursue collection from your company, which can even include the seizure of your bank funds.
- PERSONAL LIABILITY: The IRS will also pursue you personally, as a “Responsible Person” for the collection of part of that tax. This personal responsibility is called the Trust Fund Recovery Penalty.
The best action to handle an employment tax audit, or to avoid IRS collection enforcement (liens & levies), is to have a qualified IRS tax relief attorney get involved. When it comes to payroll tax debt help, our Tax Law Offices can help. You will want to have a permanent payroll tax resolution or maybe even obtain a payroll tax settlement of the debt.
What is the IRS Trust Fund Penalty?
“Withholding taxes” are the taxes deducted from an employee’s paycheck. According to federal and state tax law, they must be immediately paid over to the IRS and/or state Departments of Revenue. The taxes withheld from paychecks are called “trust fund” taxes because the employer holds them “IN TRUST” for the employee.
Collecting paycheck tax withholdings that were never paid over to the government is among the IRS’s top priorities. The IRS will determine whether an owner, accountant, manager, officer, or anyone within the business had the “personal responsibility” for failing to pay those taxes.
NOTE: The IRS will assess a penalty to the person it determines to be responsible. The penalty can be substantial, equal to the amount of taxes withheld from employees’ paychecks but never paid over to the federal or state governments.
Every business owner should know the Federal government’s rules for determining who is liable to pay these Trust Fund taxes. Watch the video here for a full explanation.
Will the IRS Collect Payroll Taxes from Business Owners?
The IRS considers numerous factors when determining whether to assess the Trust Fund Recovery Penalty for payroll taxes. These factors include:
Best Interests of the Government:
Ideally, the government can fully, quickly, and easily collect the full amount of tax from the business. The IRS prefers to simplify the collection of taxes. To make that determination, the government will consider:
- Your business's current ability to pay
- Your or your business’s potential to incur additional unpaid tax debt
- Your or your business’s history of late-filing tax returns or late payments
- Recent transfers of assets out of the business for less than their fair value
Factors from the 4180 Interview
The IRS will seek to interview you and others to determine who directly influenced the business’s failure to pay the Form 941 taxes. These factors include:
- Who appears to be responsible for tax payments?
- Who had the duty but failed to file returns and/or pay the tax to the government?
- Who paid, or was authorized to pay, the company’s bills but failed to pay the 941 tax?
- Who knew the tax was due and not paid, had the responsibility to pay, but failed to pay those taxes.
Potential Criminal Penalties
Willful failure to report or pay over Form 941 taxes is a serious criminal offense. Knowing the tax was due and having the responsibility to pay the tax but failing to do so is an example of willful conduct. In these payroll tax and TFRP cases, anyone who may have acted willfully could be found guilty of a federal tax crime, potentially leading to prison time.
In these cases, the person under consideration should never speak with the IRS without legal representation. Hire a qualified criminal tax lawyer and receive payroll tax debt help. Always let your attorney speak on your behalf to increase your chances of settling any payroll tax debts and finding a resolution.