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Posts Tagged ‘civil’

Question: Unable to pay back payroll taxes.?

My husband and I own a small business that owes 60K in back taxes. We have been on an installment plan paying $1000 over the 12 months. Business is bad, our income from the business is literally ZERO.
We are unable to pay anymore, and received a notice of intent to levy in the mail.
What do we do now? The IRS has placed a Trust Fund Penalty of 27K on us personally. So we received a notice of intent to levy on us personally as well. We can afford to pay the 27K by taking out equity in our house.
Thanks.

Answer: You did not indicate whether or not you still have employees. If so, the IRS is going to require you be up to date on all Federal Tax Deposits. If you are, then they will try to work with you. I gather you have stopped paying the $1000 per month payment. If the business cannot pay their portion of the taxes, the IRS can shut the business down and seize its assets. As far as the TFRP assessed to you personally you will need to pay what you can from the equity in your home to pay down the TFRP amount as much as you can and complete a Collection Information Statement and request an Installment Agreement for the rest. If the business is still open, you will be expected to make some kind of payment. You should complete the business Coll Info Stmt as well. You will probably need an Enrolled Agent to help you negotiate the best resolution possible. Visit one of the source websites for more information.

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In November 2009, the IRS began a new National Research Program Initiative (the Initiative): an industry wide detailed random audit of employment taxes for 6,000 employers during the course of the next three years. The purpose of the Initiative is dual fold: (1) assess systemic employment tax compliance; and (2) collect assessments from delinquent employers.

With diminishing tax revenues due to the depressed economy, the U.S. Treasury Department is stepping up efforts to decrease the tax gap between overall tax liabilities and taxes paid to the Internal Revenue Service. Auditing employment taxes is seen by the IRS as a necessary method of closing this tax gap. For tax year 2001 for example, the gross tax gap was estimated by the IRS at around $345 billion, with underreporting of employment taxes accounting for around 17% of the tax gap.

The IRS will audit businesses to ensure that Federal withholding taxes are deducted and paid over to the government from employees wages for Social Security and Medicare as well as Federal Unemployment taxes. An employer found to be in noncompliance could face stiff civil penalties and interest on unpaid taxes. These penalties could have a particularly severe impact on small business owners.

The IRS has prioritized four areas to focus their auditing efforts under the Initiative, including:

Worker Classification: i.e. whether an employer properly classifies an employee as an employee or independent contractor for tax purposes. Determining which depends on the behavioral, financial and type of relationship the company has with the person performing the work.

Employee Fringe Benefits: A fringe benefit is a form of pay for the performance of services. i.e. benefits such as insurance coverage, company car or child care, etc. that are provided by employers tax free to employees but not to independent contractors.

Reimbursed Business Expenses: e.g. reimbursement for taking a client to lunch, purchasing office supplies: which requires a written business expense plan. I.E. You must have paid or incurred expenses that are deductible while performing services as an employee. You must adequately account to your employer for these expenses within a reasonable time period, and you must return any excess reimbursement or allowance within a reasonable time period.

Compensation of Owners who are also employees of the company, whereby unpaid taxes may result in personal liability for the employer.

It has been reported that the IRS has already commenced with the process of selecting entities for audit of their employment taxes now that the employment tax audit Initiative has begun. Severe consequences wait for employers who are in noncompliance with the employment tax laws. Businesses are highly encouraged to make sure procedures are set to adhere to the applicable tax laws. Doing so can thwart much headache, and the loss of money and productive office time in the event of an audit.

For example, the Internal Revenue Code requires a written reimbursement plan in order to take advantage of the tax benefits of legitimate business expenses. Employers should consider consulting with experienced counsel in preparation for the Initiative and in the event of an audit of their employment taxes.

Justice Department Cracks Down on Tax Preparers

On the heels of the IRS s plan to begin regulating tax preparers, the Justice Department announced that it has filed six lawsuits this week to stop preparers charged with generating fraudulent income tax returns.

Civil Penalties

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. Below is a summary of IRS tax penalties that you might have to pay. It is important to understand what IRS tax penalties there are so that you can try to avoid having to pay them.

When will tax penalties be assessed?

The following circumstances can lead to tax penalties:

• you substantially understate your tax,
• you understate a reportable transaction,
• you file an erroneous claim for refund or credit,
• you file a frivolous tax submission, or
• you fail to supply your SSN or individual taxpayer identification number.

These penalties are civil penalties but there is also a fraud penalty.

When will there be an IRS fraud penalty?

If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Summary of IRS tax penalties

Filing late – Failure to File Tax Penalty

If you do not file your tax return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. The penalty is based on the tax not paid by the due date (without regard to extensions).

Fraud – Fraud Penalty

If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Very Late Returns (Return over 60 days late)

If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.