IRS 941 Form stamped "past due"

The usual payroll tax debt relief story begins like this: a small business owner misses a single payroll tax deposit, then another and another, until he reaches a point where he gets so anxious about how much he owes that he stops filing payroll tax returns. It isn’t because he wanted to: it’s because he didn’t know what else to do.

Many small businesses get into cash flow problems for all kinds of reasons. The problem that causes your cash flow shortfall can be something completely outside your control. For instance, James, a drywall sub-contractor, was given notice that the general contractor filed bankruptcy. It’s how you handle the problems – especially when payroll taxes are involved – that usually determines whether you’ll be able to remain in business.

Another example is William, a plumbing sub-contractor, who frequently hears the “retention” excuse from his general contractor. Consequently, he must wait several months to get paid. In the meantime, he must pay wages, materials etc. for his next project out of his own pocket. IRS Form 941 obligations – those listed on the employer’s quarterly federal tax return – don’t get paid. Failure to make FTD (Federal Tax Deposits) revenue means failure to pay penalties and interest will accrue. Some employers get scared and compound the problem by making an even worse mistake: they fail to file the 941 return and incur failure to file penalties which are really stiff!

If you own a small business and have IRS payroll tax problems, you’re in danger of losing your business every day. To be sure, the IRS takes an iron-fisted position on payroll tax violations. They would rather close a business and sell off its assets rather than work out a deal with the business owner. In my professional opinion, this is probably because higher management gives every IRS agent too many cases to work on at once, so the agents are forced to close many small businesses simply to keep up with the agents’ caseload.

Nancy ran a successful Servpro business for several years when she fell victim to embezzlement. The employee paid himself instead of paying the FTDs. She sold assets, laid off employees, and borrowed money to pay a chunk of the IRS debt. An installment contract was set up but unfortunately, Nancy missed a payment. The IRS agent swiftly levied her accounts receivable. She lost two vendors which eventually forced her out of business. The agent simply assumed she would keep running up liabilities. The point is that she begged for another installment agreement. However, the IRS bureaucratic agent didn’t want to take the risk of granting an installment contract that will probably result in making him look bad in the eyes of management.

To add insult to injury, the IRS pursued Nancy personally and raided her personal accounts to pay off the payroll debt. Unfortunately, she didn’t set up her business under a corporation to protect herself from third party liability.

The worst thing about business payroll taxes is that the IRS can collect them from anyone they deem responsible for not having paid them. For example, the business owner or any check signer on the business bank account can be singled out for collection activity.

They will do everything they deem appropriate to recoup payroll taxes; usually a visit to your home or workplace kick-starts the collection process. Every weapon in their arsenal can be used (levies, liens, seizure) until the taxpayer agrees to some type of repayment.

The IRS is aggressive in collecting payroll debt because they consider the failure to make FTDs as “theft.” The payroll tax withheld by the employer on behalf of the employee belongs to the employee. Employers who fail to file IRS Form 941’s and to make FTDs are risking IRS criminal prosecution.

If you’re in a deep, dark place right now because you owe unpaid payroll taxes, email us or call the Law Offices of John A. Sterbick at (253) 383-0140 right now to find out about payroll tax debt relief. You’ll sleep better tonight knowing that you have a reputable, well-tested Tacoma-based IRS tax attorney in your corner figuring out your best next move.