So I’m at the golf course watching the golf pro giving lessons to several students. It is a beautiful spring day, the grass is getting green and the air is clear and still. After several minutes of hitting balls, I started feeling a little cocky. So I walked over and ask the pro if he needs my help. He says yes, could I go wash his car.
So I will limit myself to giving advice on tax law.
I have been a federal tax attorney for nearly 40 years. During that time I have seen a number of changes in the tax law – and in IRS enforcement of those laws. Perhaps one of the greatest changes I have seen involves payroll taxes. This area continues to be one which the IRS focuses upon and commits huge resources to each year. Let’s look at it in a little more detail.
In general, unpaid income taxes is a resolvable problem. Many of us owe income taxes, often through no fault of our own. There are a variety of new laws Congress has passed to help us. As much as the IRS hates these laws – it will comply if push comes to shove. So if you owe income taxes, get a good tax representative familiar with taxpayer rights and most problems can be resolved.
However unpaid payroll taxes are a completely different matter. The federal tax law requires employers to withhold taxes from employees. But sometimes there is not enough cash to withhold and pay over to the IRS – often through no fault of our own. For example, a general contractor may not be able to pay a subcontractor until the next draw from the owner, so the subcontractor can’t pay his payroll tax for several weeks. Likewise a key customer may default or perhaps declare bankruptcy so a business cannot pay its payroll taxes – through no fault of its own. The business world is full of these examples.
When there is a cash shortfall , payroll tax deposits are often the last expense to be paid. This is because the IRS is slow to find out – and even slower to act-providing time for the business to try to raise the money. But by the time an IRS agent does get involve, many months may have passed and huge penalties and interest have been added. The tax bill now is so great that many businesses simply can’t pay. So the business owes payroll taxes it may not be able to pay.
In addition, the IRS will make the responsible parties personally liable for these taxes. The IRS sees them as thieves, they withheld money from employees to pay over to the IRS but instead paid other business expenses. Of course this is nonsense, frequently there simply wasn’t any money to withhold. Nevertheless the IRS will pursue the responsible parties personally for the unpaid payroll taxes. The IRS uses a low bar to cast a wide net. It will begin an investigation and pursue everyone it can reasonably blame. The news stories of lost businesses, seized homes, levy on retirement plans, and garnished wages are often true.
There are a variety of ways to deal with unpaid payroll taxes both before and after they are owed. But they are far too complex to address in this short article.
Folks, if you are having problems with payroll taxes, see an experienced tax lawyer quick, before things get out of hand and your options close.
And for you golfers out there, humiliation is our daily event.