Payroll Tax

Is your company or business failing to either file or deposit the payroll taxes as they come due? Is the government threatening to shut your business down? Is your bank account being levied? Did the IRS issue tax liens against your business? Due to difficult financial situations some businesses fail to timely deposit all their payroll taxes. It is important that you make prompt arrangements with the IRS to resolve the delinquency problem. IRS considers nonpayment of payroll taxes to be a very serious problem and can get very aggressive in their collection process.

Resolving Payroll Tax Problems with the IRS:

Payroll tax issues can jeopardize the survival of your business and expose you to personal liability, with the Internal Revenue Service (IRS) employing aggressive collection tactics such as liens, levies, and even business shutdowns. If your company is struggling to file or deposit payroll taxes, or if you’re facing IRS enforcement actions, immediate action is critical. We can make various arrangements with the IRS so that you can maintain your business while your old payroll taxes are either paid or reduced to a manageable level.

Keep in mind that the unpaid payroll taxes of your company may result in you being individually liable for these “trust fund” taxes. You may be responsible for the trust fund portion of the payroll tax if you were responsible for collecting and paying over these taxes but failed to do so.

Understanding Payroll Tax Obligations

Payroll taxes are a critical responsibility for businesses, encompassing federal income taxes, Social Security, and Medicare taxes withheld from employees’ wages, as well as the employer’s matching contributions for Social Security and Medicare. These taxes must be:

• Withheld: Deducted from employee paychecks based on W-4 forms and IRS withholding tables.
• Deposited: Remitted to the IRS on a regular schedule (e.g., monthly or semi-weekly) via Electronic Federal Tax Payment System (EFTPS).
• Reported: Filed quarterly on Form 941 and annually on Forms W-2 and W-3.

The trust fund portion of payroll taxes—employee withholdings for income, Social Security, and Medicare—is held in trust by the employer until deposited with the IRS. Nonpayment of these taxes is considered a serious violation because it involves funds belonging to employees, not the business. Failure to comply can trigger severe IRS consequences, including:

• Penalties: Failure-to-file, failure-to-pay, and failure-to-deposit penalties, which can exceed 25% of the unpaid taxes.
• Interest: Accrues daily on unpaid taxes and penalties, compounding the debt.
• Collection Actions: Tax liens on business and personal property, bank account levies, wage garnishments, or asset seizures.
• Business Shutdown: The IRS may seize business assets or revoke operating licenses, effectively closing the company.
• Personal Liability: Responsible individuals may face the Trust Fund Recovery Penalty (TFRP), holding them personally liable for the trust fund portion of unpaid taxes.

Given the IRS’s aggressive stance on payroll tax noncompliance, prompt resolution is essential to protect your business and personal finances.

Consequences of Payroll Tax Delinquency

Payroll tax problems often arise during financial hardship, when businesses prioritize other expenses (e.g., rent, vendors) over tax deposits. However, delaying or failing to address payroll tax obligations can lead to escalating consequences:

• Tax Liens: The IRS may file a Notice of Federal Tax Lien, publicly claiming your business and personal property (e.g., real estate, vehicles, bank accounts) as security for the debt. Liens harm your credit and complicate property sales or refinancing.
• Bank Levies: The IRS can seize funds from business or personal bank accounts, disrupting operations and personal finances.
• Wage Garnishments: The IRS may garnish wages of business owners or key employees, further straining cash flow.
• Business Closure: In extreme cases, the IRS may seize business assets or coordinate with state agencies to revoke licenses, effectively shutting down your company.
• Personal Liability via TFRP: If you are deemed a “responsible person” who “willfully” failed to collect, account for, or pay trust fund taxes, the IRS can assess the TFRP, making you personally liable for the employee withholding portion of the taxes (100% of the unpaid amount, plus interest).

The TFRP is particularly concerning because it targets individuals—such as business owners, officers, or accountants—regardless of the business’s financial status. Proving you were not responsible or did not act willfully is a complex defense that requires skilled legal representation.

Common Scenarios for Payroll Tax Problems

Payroll tax issues can arise in various situations, including:

• Cash Flow Shortages: A struggling business uses payroll tax funds to cover operating expenses, leading to delinquent deposits and IRS notices.
• Negligent Bookkeeping: An accountant or payroll service fails to file Forms 941 or deposit taxes, leaving the business and officers liable.
• Business Transitions: A company undergoing a sale, merger, or closure neglects payroll taxes, triggering IRS audits and TFRP assessments.
• Start-Up Challenges: New businesses unfamiliar with payroll tax rules miss deposits or filings, accumulating penalties.
• Personal Liability Risks: A corporate officer or partner is targeted for TFRP liability despite limited involvement in tax decisions.

How Tax Lawyers Group APC Can Help

At Tax Lawyers Group APC, our Los Angeles tax attorneys offer comprehensive solutions to resolve payroll tax problems, protect your business, and defend against personal liability. Our services include:

1. Immediate Intervention to Stop Collection Actions

• Halting Enforcement: We negotiate with the IRS to pause aggressive collection actions, such as liens, levies, or seizures, while we develop a resolution plan.
• Lien Releases or Withdrawals: We pursue lien releases (e.g., after full payment or an Offer in Compromise) or withdrawals (e.g., if the lien was filed in error or withdrawal aids tax collection).
• Levy Releases: We secure releases of bank or wage levies by demonstrating financial hardship or proposing a payment plan.

2. Compliance and Filing Assistance

• Filing Delinquent Returns: If your business has unfiled Forms 941, we prepare and file them accurately, ensuring compliance and halting failure-to-file penalties.
• Reconstructing Records: If payroll records are missing, we obtain IRS wage and income transcripts or reconstruct financial data to complete filings.
• Current Compliance: We ensure ongoing payroll tax deposits and filings are up to date, a prerequisite for IRS relief options.

3. Negotiating Tax Debt Resolutions

We explore various strategies to reduce or manage your payroll tax debt, tailored to your business’s financial situation:

• Offer in Compromise (OIC): We negotiate a settlement to pay less than the full amount owed, often resolving both business and trust fund taxes.
• Installment Agreements: We arrange affordable monthly payment plans to satisfy the debt over time, allowing your business to continue operating.
• Penalty Abatement: We request removal of penalties for reasonable cause, such as financial distress, illness, or reliance on a negligent professional.
• Currently Not Collectible (CNC) Status: For businesses or individuals in severe financial hardship, we seek temporary suspension of collection actions.
• Trust Fund Tax Allocation: We ensure the IRS applies payments to the trust fund portion first, reducing personal liability for responsible persons.

4. Defending Against Trust Fund Recovery Penalty (TFRP)

If you’re at risk of personal liability, we build a robust defense to challenge the TFRP:

• Challenging Responsible Person Status: We argue that you lacked authority or control over payroll tax payments, shifting liability to others (e.g., a CFO, accountant, or owner). Evidence may include corporate bylaws, bank signature cards, or testimony.
• Disputing Willfulness: We demonstrate that your actions were not willful, such as by showing you were unaware of the delinquency, relied on a professional, or faced external pressures (e.g., creditor demands).
• IRS Interviews and Appeals: We represent you during Form 4180 interviews, ensuring your statements are accurate, and pursue appeals if the IRS proposes a TFRP assessment.

5. Preventing Future Payroll Tax Issues

• Compliance Systems: We advise on implementing internal controls, such as dedicated payroll accounts and timely EFTPS deposits, to prevent future delinquencies.
• Training and Policies: We provide guidance on payroll tax compliance, including proper withholding, reporting, and record-keeping.
• Ongoing Support: We offer proactive monitoring to ensure your business remains compliant with IRS requirements.

Our comprehensive approach addresses both immediate crises and long-term compliance, protecting your business and personal finances.

Why Choose Tax Lawyers Group APC?

At Tax Lawyers Group APC, our Los Angeles tax attorneys bring unparalleled tax expertise and a client-centered approach to resolving payroll tax problems. Here’s why we’re the trusted choice:

• Specialized Knowledge: Our team has extensive experience with IRS payroll tax regulations, including TFRP defenses and debt resolution strategies, ensuring precise and effective representation.
• Proven Success: We’ve successfully negotiated lien releases, levy suspensions, OICs, and TFRP defenses, saving clients’ businesses and personal assets.
• Comprehensive Analysis: We thoroughly review your business records, IRS notices, and individual roles to identify all possible defenses and relief options.
• Strategic Advocacy: We negotiate with the IRS on your behalf, challenging assessments and securing affordable resolutions to keep your business operational.

Our Los Angeles tax attorneys have successfully represented clients in these and other scenarios, leveraging our expertise to resolve delinquencies and protect against personal liability.

Consult a Tax Lawyer

Payroll tax problems can threaten your business’s survival and personal finances, but with the right strategy, you can resolve delinquencies, avoid aggressive IRS actions, and protect your assets. At Tax Lawyers Group APC, our Los Angeles tax attorneys are ready to intervene, negotiate with the IRS, and develop a tailored plan to address your payroll tax issues.

Contact us today at (310) 788-9820 to schedule a confidential consultation. We’ll review your business’s tax records, IRS notices, and financial situation to create a comprehensive resolution strategy.