The Scenario - Your business has fallen behind on paying the payroll taxes because of cash flow. You can borrow some money personally to pay part of the past due, but not enough to full pay. How should you approach this problem?
The answer is that you want to minimize the impact of the IRS assessing a penalty on you personally for 100% of the unpaid Trust Funds. The way you do it is to make a voluntary payment with a check. On that check you want to write in the comments section “Trust Funds Only”. Due to Revenue Procedure 2002-26, the IRS must comply with your request on how to apply the payment against you account.
Why is this a good idea? Sooner or later the IRS is going to get around to collecting those payroll taxes. Their big tool in this process is to access a penalty on the “responsible parties” equal to 100% of the money withheld from employees pay checks for income, social security, and medicare taxes. If you make a payment for the business to cover part of the past due amount without any designations, the IRS will automatically apply it first to the unpaid employer taxes. This procedure allows them to maximize the 100% penalty when it is assessed.
If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email firstname.lastname@example.org .
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