In our May 30 blog post, we discussed the Internal Revenue Service's efforts to target divorced spouses who fail to accurately report alimony payments as taxable income. This is part of a concerted effort to make up gaps in tax collection by targeting individuals who have supposedly skirted federal tax laws.
Similarly, a recent report from the Treasury Inspector General for Tax Administration indicates that the IRS has not collected billions worth of payroll taxes. Not only that, but the report also suggests that the agency hasn't been efficient or timely in trying to make collections. In other words, employers may need to be on the lookout for IRS action.
Employers generally withhold money from employees’ paychecks and are expected to submit corresponding payroll tax payments to the IRS. Failure to follow through with this can result in significant penalties.
However, the narrative that people do not pay their taxes because they are trying to avoid taxation doesn't always tell an accurate or complete story. For small business owners, finances can get tight. As such, it may be very difficult or impossible to make ends meet. In order to stay afloat by paying other bills or employees, payroll taxes may take a back seat.
The IRS is likely to make efforts at collection no matter the circumstances behind an alleged failure to meet payroll tax demands. On the other hand, employers may be able to reach a settlement with federal tax officials.
Moving forward with efforts to reach a settlement can be a very tedious process. For this reason, business owners may need to retain the services of an experienced attorney to gather the necessary paperwork and work toward a resolution with the IRS, particularly if there was no wrongdoing in the first place.
Source: Fox Business, "Payroll Tax Penalties: Make them Your Priority," Bonnie Lee, June 6, 2014