One of the greatest frustrations I have in my law practice is the number of people who come to see me so late in their case. It seems that the gravity of their tax problems either does not register with them or is so frightening that they don’t want to face it. The result of this delay is that many of the possible ways to resolve their case disappear – they simply have lost the time window to take advantage of various tax resolutions.
As a result, their case becomes more complex and time consuming – and expensive. And things can get worse. Sometimes a simple civil case with several possible resolutions changes into a criminal case with no resolution. A recent Tax Court case reflects just how bad things can get when we take action late and do the wrong things. Today we’ll look at that case and some of the mistakes that were made.
The facts are fairly simple. A husband and wife operated a business that failed to pay its payroll taxes. In an effort to continue operating, the business changed names, entities, and identification numbers over a period of time. Finally the IRS assigned the case to a revenue officer who sought collection of the payroll taxes and, when he was unsuccessful, assessed those taxes against the widow (the husband had passed away).
Folks, this is a fairly common predicament today. Many businesses fail to pay their payroll taxes. Often that failure may be through no fault of their own. For example, a general contractor who fails to pay a subcontractor may force the subcontractor to miss its 941 deposits. Others rely on money promised to be paid in the future – from customers, bankers, a shareholder – who fail to pay and cause the business to default as well. These promises and today’s economy have absolutely hammered many businesses
In any event, the cases are the same, a business has failed to pay its 941 taxes, the shareholders were assessed those taxes personally, and an IRS agent was assigned to resolve the case.
But instead of hiring an experienced federal tax representative, meeting with the IRS, and developing a plan of resolution, the widow decided she would simply try to hide her assets from the IRS. She foolishly paid bills with unreported cash and had others hold her few assets for her.
The IRS discovered this and converted her simple civil nonpayment case into a criminal case. This elderly insolvent widow who failed to pay payroll taxes was convicted of a felony and sentenced to 3 years in prison and a $72,000 fine. And her case was not concluded until 10 years had run!
So there you have it. A simple civil failure to pay problem with a variety of possible resolutions needlessly escalates into a complex criminal tax problem whose only resolution was prison and fines.
Folks, let’s all learn from this poor widow’s dumb mistakes. If you owe payroll taxes and can’t pay, contact an experienced federal tax representative at the earliest possible time and develop a plan of resolution quickly. You’ll save time, money, and to more sleep in your own bed.