Can You Really Negotiate With The IRS For Reduced Payroll Tax Debt?
Businesses with employees are required by law to make payroll tax payments to the Internal Revenue Service in a timely manner. Payroll tax withheld by an employer, to be paid to the IRS, is also known as trust fund tax. In reality, the employer holds the money in trust for its employees.
The IRS reports that there are an estimated 2 million businesses that owe over $50 billion in unpaid payroll taxes. The IRS is aggressive in seeking payment of past-due payroll taxes.
A business facing an issue involving past due payroll taxes needs to understand what options are available to effectively address the issue. Possible strategies include retaining experienced legal counsel to negotiate with the IRS and attempt to arrange an offer in compromise to deal with the payroll tax debt.
IRS Enforcement Test
The IRS utilizes a test to determine a business's liability for payroll taxes. First, the business must be responsible for collecting and paying payroll taxes to the IRS. Second, the business must have willfully failed to properly collect and pay payroll taxes to the IRS.
Penalties for Nonpayment of Payroll Taxes
The IRS has stiff penalties for failing to pay payroll taxes. In addition, interest accrues for payroll taxes that are not paid in a timely manner.
One of the most onerous penalties the IRS can impose for nonpayment of payroll taxes is what is known as the Trust Fund Recovery Penalty. The Trust Fund Recovery Penalty permits the IRS to reach out to individuals who might otherwise be protected from personal responsibility for the action or inaction of a business.
The Trust Fund Recovery Penalty permits the IRS the ability to seek payment of unpaid payroll taxes from the officers, shareholders, or employees of a business that has failed to pay its payroll taxes. The Trust Fund Recovery Penalty can also extend to outside entities that have been involved in handling payroll for a business enterprise.
Negotiate a Settlement with the IRS
Because the IRS is so aggressive in addressing the matter of unpaid payroll taxes, a business facing this issue should retain legal counsel with all deliberate speed. In addition, a person associated with a business that has unpaid payroll taxes who faces the consequences of a Trust Fund Recovery Penalty should be proactive in retaining legal representation.
The possibility exists that either a business or an individual being pursued under the Trust Fund Recovery Penalty may have the opportunity to negotiate with the IRS. At the heart of such a negotiation is likely to be attempting to obtain an offer in compromise.
The reality is that a layperson who lacks experience in dealing with the IRS is not likely to be able to effectively pursue satisfactory negotiations with the agency. This reality underscores the need to retain an attorney that has the experience necessary to negotiate with the IRS in regard to these challenging types of payroll tax issues.
When an Individual is Deemed Personally Responsible for Payroll Tax
The IRS utilizes some specific factors when ascertaining whether or not an individual is deemed responsible for a payroll tax debt when seeking enforcement through the Trust Fund Recovery Penalty. An IRS Revenue Officer examines the facts and circumstances of a case to determine the responsibility of an individual when it comes to a payroll tax obligation.
Technically, an individual must be determined to be responsible in some manner for payroll tax and willfully failed to make payroll tax payments. Oftentimes, the IRS concludes an individual is responsible because of his or her status with the business.
Examples of individuals that can be held responsible for payroll taxes pursuant to the Trust Fund Recovery Penalty include a person with check signing authority. The position an individual holds with a business can also trigger the Trust Fund Recovery Penalty. The IRS may take action against a person who signed tax returns. An individual who hires or fires employees might also be deemed legally liable for payroll tax issues pursuant to the Trust Fund Recovery Penalty.
Schedule an Initial Consultation
The first step in retaining legal representation in an IRS payroll tax matter is scheduling an initial consultation with a qualified, skilled tax lawyer. During an initial consultation, a tax attorney will provide an evaluation of the case. This will include a discussion of possible strategies to address the issues surrounding unpaid payroll taxes.
In addition, a business or individual facing a payroll tax matter with the IRS will be able to obtain answers to questions. As a general practice, a lawyer typically charges no fee for an initial consultation in an IRS matter like unpaid payroll taxes.