Quick Answer: When behind on payroll taxes, the IRS targets both the corporation and “responsible persons” (officers, executives, check signers) for the trust fund portion. For a $500,000 payroll tax debt, the business should prioritize borrowing to pay at least the trust fund portion and prepare Form 433B before the Revenue Officer makes contact.
“Dear Jim,
I own a fire protection company that does around 4 million a year. It is a c corp. We are $500,000 behind in payroll tax,s. Our business is picking up substantually and I believe we will make it through this extreme situation
Can you help me
What is the best way to work this out with the IRS
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Daniel”
Hi Daniel:
Sorry to hear about your hardship but I am glad to see that business is picking up.
As you are probably already aware, unpaid payroll taxes have a special collection process at the IRS. In these situations, the IRS looks to collect o both from the corporation and the “responsible persons.” All responsible persons become liable for the “trust fund” portion of the taxes (the FICA and income tax withholding from the employees paychecks).
If you have not already been contacted by the IRS (by a local collection person called a ‘Revenue Officer”), you will be soon. This person will try to collect on the corporation as well as all responsible persons.
Without knowing your particular situation, I recommend the following:
- Make an attempt to borrow funds from all available sources to pay, at least, the trust fund portion of the tax liability
- Complete a Form 433B, Collection Information Statement for Businesses, and have it ready for the Revenue Officer
- Determine who are “responsible persons” for assessment of the trust fund taxes – normally, they are corporate officers, executives, and those with check signing authority. Inform them of the consequences of the payroll tax situation and prepare them for a trust fund recovery penalty interview by the IRS. Understand that the IRS will try to collect on these individuals at the same time as the corporation.
- Make sure you are current with your payroll tax liabilities- that is, all of your Federal tax deposits for this quarter are up to date. Without being current with deposits, the IRS will just enforce collection until you are current.
Daniel, unpaid payroll taxes are a serious issue for the IRS. These situations are difficult for you to work out yourself. The IRS will look to assess and collect from all liable parties. The IRS will look to equity in business assets and responsible persons first (borrow or liquidate) and a payment plan from the business and or responsible persons next.
Payroll tax liabilities are complex issues with the IRS. Look to work out a mutually agreeable payment plan that the government will be repaid in full. You will have to convince the Revenue Officer that you will stay compliant and be able to pay the taxes off in a short amount of time.
Jim
Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at IRSMind.com.
If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.
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