If you are a broker or realtor that has employees, or if you handle the payroll tax compliance for your employer, it is most important that you understand your potential tax liability.
The IRS is most concerned about employer payroll compliance as payroll taxes withheld by employers account for nearly 72 percent of all revenues collected by the IRS. Accordingly, noncompliance and cheating in this area is one of the biggest problems for the nation’s tax system. Between March 25 and April 5, IRS revenue officers visited nearly 100 businesses around the country suspected of having serious issues with employment tax compliance. Business owners were informed about ways to catch up with back payroll taxes, how to stay current and the potential for civil and criminal penalties.
"Payroll taxes form a key part of our tax system," said IRS Commissioner Chuck Rettig. "When individuals and businesses evade their employment tax obligations, it not only undermines our tax system, it also creates an unfair situation for people who are following the law. The IRS is committed to compliance in the payroll tax arena, which helps ensure fairness and faith in our tax system."
"Enforcement is never our first resort, but protecting this significant source of revenue to the nation deserves our best efforts, including reaching out to help businesses help themselves," said Darren Guillot, Director of IRS Field Collection Operations.
On the criminal enforcement side, IRS Criminal Investigation (CI) worked with the Department of Justice Tax Division and U.S. attorneys around the nation to focus on about 50 law enforcement actions related to employment tax crimes.
During this special campaign, IRS CI indicted 12 individuals, executed four search warrants and saw six individuals or businesses sentenced for crimes associated with payroll taxes. In addition to these early numbers, roughly two dozen more enforcement actions are planned in the weeks following the two-week campaign as well.
“Employers know the rules—they must deposit and report employment taxes accurately—this is non-negotiable,” said Don Fort, Chief of IRS Criminal Investigation. "When employers fail to pay over the required employment taxes for whatever reason, they skip out on one of their most important responsibilities as a business owner. Not only are those employers cheating the system and their employees, they are cheating future generations relying on those taxes to help build the future.”
The IRS has several tools to bolster payroll tax compliance including educational outreach, data analytics, civil investigations by highly trained revenue officers, as well as harsher measures such as lawsuits, seizures and criminal referrals to IRS CI.
One of the legal enforcement actions available to the IRS is to impose the Trust Fund Recovery Penalty against responsible persons at the company. According to IRC Sec. 6672, any person who is required by law to collect, truthfully account for, and pay over any tax, and who willfully fails to do so or willfully attempts in any manner to evade or defeat payment, is liable for a penalty equal to the total amount of the tax. This provision is known as the trust fund recovery penalty or the “100 penalty” because the amount equals the amount that should have been paid to the government.
When assessing this penalty, the IRS takes a very broad approach. Any officer, principal owner, bookkeeper, accountant, etc. who is even remotely connected with payroll tax filings and remittances can be determined to be a responsible person by the IRS and assessed the Trust Fund Recovery. The determination of a responsible person can include multiple persons at the non-compliant business. Professional tax representation is very important if you are designated by the IRS as a responsible party if you are to prove to the IRS that someone else, and not you, is a responsible party.
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 18 years. His blogs http://www.taxexpertblog.com and http://www.stopmytaxproblems.com
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Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
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