Failure to Pay Payroll Taxes on Time
When a business fails to pay the payroll taxes on time, penalties and interest start to accrue. This causes additional cash flow problems for the business when cash is such an important commodity.
Late Filing of Payroll Returns
If the payroll returns are not filed on time the penalties are substantially increased. Failure to file a return on time can incur penalties of 5% per month to a maximum of 25%. Add that to other penalties, along with the compounded interest and you can have a very serious tax problem.
Taxpayers who are unable to pay in full generally have three options to settle their debts with the federal or state taxation authorities. These liabilities are resolved primarily in the same manner on the federal or state levels; however, there are a number of nuances that you should be made aware of. Please contact our San Diego office to speak with our attorneys and staff for help and more information on each of these options.
1) Currently Non-Collectible Status: For certain taxpayers facing economic hardship and with little future collections potential, the federal and state tax agencies are able to suspend collection activity in certain circumstances. The program is not heavily advertised by the federal or state tax agencies and is considered a last resort when no other viable options appear readily available. Currently Non-Collectible status is difficult to obtain and requires an experienced advisor to guide you through the process and to negotiate with the government. Please contact our office if you are interested in obtaining non-collectible status.
2) Offer in Compromise: This program authorizes federal or state tax agencies to settle liabilities for less than the full amount owed. In order to qualify for the Offer in Compromise program your business must no longer be in operation and be inactive. In rare circumstances, the federal or state tax agencies will accept an Offer in Compromise if the taxpayer no longer has an association or controlling interest in the entity that incurred the liability. Further restrictions to the program apply such as having no saleable assets or the future earning potential to settle the liability and not being able to pay more than the accumulating interest on an annual basis. Furthermore, the program will only apply to liabilities that are not in dispute and not the result of fraudulent activity.
For more information, see our section on Offers in Compromise.
3) Installment Agreement: These arrangements allow the taxpayer to pay a liability over a fixed period of time. In the interim, the federal or state tax agencies will cease all collection action, including levies garnishments, as long as the taxpayer does not accrue additional liability and makes all of their required filings and payments. However, interest and late payment penalties will continue to accrue on the remainder of the balance and the government may file a federal or state tax lien until the liability is satisfied.
Installment agreements are a convenient method to utilize future cash flow and to pay off liabilities over a fixed period of time. However, the government will only grant them as a last resort, and will want taxpayers to sell, borrow against their assets, and exhaust potential lines of credit before considering an installment agreement. The government’s stringent standards may be unworkable for individuals or they may refuse to grant them entirely, even to cash-strapped taxpayers or those facing insolvency.
An experienced tax attorney can help guide you through the installment agreement process and get the results that work best for you. Whether your goal is to pay the tax as quickly as possible to minimize the accruing interest and penalties, or to negotiate a minimum monthly payment to increase your financial flexibility, we can help. Furthermore, we can help roll your current compliance into your monthly installment payments, help stall collection actions, or help deal with difficult or inflexible government personnel.
If you have any questions or if we can further assist you, please contact our San Diego office.
For more information, please see:
- IRS Payroll Tax Main Page
- The IRS Trust Fund Recovery Penalty
- Independent Contractor Reclassification