Payroll Taxes Gone Bad

The IRS is particularly watchful of small businesses and payroll taxes. In the past, many small businesses thought they could get away with ignoring such taxes more easily than the big businesses. The IRS caught on and is now on the watch for businesses small and large alike. Payroll taxes are one of the IRS's biggest compliance issues.

Payroll tax problems usually begin when a business is late to file their employment tax returns or when a business is late in paying the withholdings to the IRS.

The IRS will get your payroll taxes or they will take your business, seize your assets, and come after you personally. No matter your business structure, you can become personally responsible for these unpaid taxes. From the biggest CEO to the smallest shareholder, if your company fails to pay payroll taxes, you can be held personally liable. No method exists to resolve payroll tax disputes other than paying up. The IRS can shut down your business and seize your assets for failure to pay payroll taxes, and no court order is needed.

The collection process will begin by the IRS assigning an agent to interview the business owner(s) and any involved third parties, in an effort to collect the back taxes or to invoke the Trust Fund Recovery Act against every concerned party they can.

The money you collect for towards these taxes is the withholding from your employees. So, you are technically holding this money in trust to turn over to the IRS on behalf of your employees. The Trust Fund Recovery Penalty is assessed against your company when you fail to hand the payroll tax money over in a timely fashion.

The Trust Fund Recovery Penalty is assessed at 100%. In other words, if you have $8000 in unpaid payroll tax, the Trust Fund Recovery Payment will be assessed at $8000 on top of the $8000 you owe. The Trust Fund Recovery Penalty doubles your payroll tax liability.

If you do find yourself in trouble with payroll taxes, you will need to contact a tax resolution specialist swiftly. They might be able to make a case as to who the responsible party is in the matter. The IRS agent assigned to the case is required to make this determination during the interview process. Your tax resolution specialist may seek to claim that the categorization of the responsible party is incorrect. That may get one person off the hook, but the truth of the matter is that someone from your company is going to pay. If you are a sole proprietor, it can only be you.