Author: David Miles

Justice Department Gets More Aggressive

Employment tax fraud has for many years been an issue of vital importance to both the Department of Justice and the Internal Revenue Service (IRS). Employers have the obligation to withhold and turn over taxes belonging to individuals—if they fail to comply with this responsibility, our system of relying on voluntary compliance can erode. Additionally, because the IRS does not pursue individuals for the non-payment of their withheld taxes, the loss to the government is exacerbated. Not only are the funds not collected from the employer, but the employee is actually given credit for taxes paid.

How exactly does this play out? While each situation may differ due to various circumstances, for the purposes of this discussion let’s think of it this way:

Imagine a company has in employee who is paid every two weeks. However, when pay day comes the employee doesn’t receive the full amount.  Instead, he/she is paid less, sometimes much less, because the employer is charged with making certain necessary deductions such as income tax (federal and state), social security and Medicare.

On top of that, the employer has the obligation to ensure that the withheld funds get to the IRS by making what is called a federal tax deposit. However, let’s pretend that in this particular situation, the employer does not send the funds to the IRS. At this point, a tax liability is created in the employer’s name and penalties and interest begin to accrue. The employee, however, still receives credit for the taxes that were withheld from his/her paycheck.

Fast forward to the end of the year. Now, the employee has a tax due based on income earned and deductions as we all do. The amount due is usually paid in advance by the withheld taxes even though in this particular example the funds aren’t actually paid in by the employer.

Recently, this issue has started to receive even more attention. In fact, the Wall Street Journal published an article discussing the Department of Justice’s intent to get tougher on employment tax fraud—which can include withholding by not paying over employment taxes (article link). This piece provides insight from the head of the Justice Department’s tax division, Caroline Ciaolo, “Employers across the country need a loud and clear message that this is not just a civil violation—that the willful failure to comply with the employment-tax laws is a crime and that we’re going to hold folks accountable.” 

Despite the aggressive tone of Ms. Ciarolo’s statement and the Department of Justice string of victories against companies accused of employment tax fraud nothing has seemingly changed from a funding perspective to allow a new initiative. The question looms: has the Department of Justice realigned priorities and resources to target employment tax cases over other cases or is the publicity surrounding the recent verdicts an opportunity for the Department to send a larger message?

While no one has a crystal ball, at this point rather than focusing on the answer to this particular question, it is probably better to focus on resolving an employment tax issue before it gets the Department of Justice’s attention.  For those of you facing this type of tax problem, we strongly urge to you contact us today.  There is no reason for you to wait around to see what could happen given the current landscape.


IRS Collection Cases: Top 5 Myths

It’s that time of year.  Taxpayers across the country are preparing returns only to learn that they owe taxes they cannot pay.  What’s the consequence of owing the Internal Revenue Service (IRS) unpaid taxes?  That’s a question that is difficult to answer since every case depends on the facts and circumstances of the specific situation.  However, what owing taxes does mean is that the taxpayer is likely to encounter the IRS Collection Division.

The Collection Division is responsible for collecting taxes that have not already been paid or placed on a voluntary resolution program.  Unfortunately, there is quite a bit of misinformation regarding cases assigned for collection by the IRS.  Regardless of your circumstances here are a few of the most common myths of IRS collection cases:

  1. You’re not responsible for mail you never get: Many taxpayers believe, mistakenly, that if they don’t let the IRS know their most current address they are not responsible for collection letters the IRS is sending.  Nothing could be further from the truth.  Generally, the IRS’ requirement for service by mail is the taxpayer’s last known address.  Therefore, if the taxpayer has not notified the IRS of an address change the taxpayer will actually be the one to suffer by being in the dark.  This issue can end up costing a taxpayer valuable collection appeal rights.
  2. The IRS will settle for “pennies on the dollar”: The IRS does have a settlement program called the Offer in Compromise (OIC). Interestingly, offers happen probably more often than many tax professionals think, but a lot less than taxpayers have come to believe. The IRS’ own numbers over the past two years show an Offer in Compromise acceptance rate of roughly 40%.  Still, the key to a successful offer is the pre-qualification process.  There are many nuances to an Offer in Compromise case and as a result, there is no substitute for experience when it comes to presenting a viable, realistic offer. 
  3. The IRS can collect against you for a lifetime: Sometimes dealing with IRS Collections for more than a day can feel like a lifetime.  Especially, if you’re on hold.  In fact, the rules concerning how long the IRS can pursue unpaid taxes are quite clear.  Generally speaking the IRS’ statute of limitations for collection is ten years from the date a liability is assessed.
  4. The IRS will take your home: In actuality, the IRS is not going to take your home.  That’s not to say that the IRS can’t take it… only that the IRS doesn’t do it.  Seizures (which can include home, car, boat, etc.) themselves are fairly rare for the IRS.  In the past two fiscal years, the IRS has reported fewer than 500 total seizures.  And because policy statement and stricter rules make seizing a primary residence more difficult it becomes increasingly difficult to face that proposition.
  5. At least the IRS can’t get to your retirement accounts: Unfortunately, the IRS can get to retirement accounts.  There are very few assets exempt from the reach of an IRS levy.  They are outlined specifically in the Internal Revenue Code and include (here), but are not limited to, Workmen’s Compensation, Unemployment Benefits and minimum exemptions for salaries and wages.  What one won’t find exempted by rule are 401k accounts, stock accounts or Social Security benefits.

Of course, dealing with IRS Collections is a nuanced process that should not be taken for granted.  But, dispelling the myths above should help bring more clarity to what one may face when dealing with IRS Collections.

Payroll: What You Don’t Know Can Hurt You

I regularly speak to the collection system or process that underlies IRS and state collections. A common theme that is promoted in our collection representation education courses is to try and control as much of the collection process as possible. There is nothing more powerful to one’s role in the collection process than knowledge and communication.

These key components of dealing with the IRS are true for individuals and businesses alike. And yet, when we talk about knowledge and communication we are so often referencing areas of improvement for business owners. Small to medium-sized business (SMB) owners are typically inundated with responsibilities. Not only are the company’s employees looking to owners for their livelihood, but many are still directly involved in the company’s production, its product.

Take these burdens and couple them with an IRS system that sends an extraordinary volume of mail to report on even the slightest detail (a change in reconciling small dollars on a return) and certain problem patterns develop. There are two very common scenarios that lead to the owner getting behind and thus losing control of the collection process very early on:

  1. Not opening IRS mail
  2. Empowering someone other than themselves to control the payroll process

The IRS is infamous for its mountains of mail. Taxpayers know it, tax professionals know it and the IRS knows it.  For the IRS, it’s a crucial and relatively cost effective way to fulfill certain statutory obligations such as the need to keep taxpayers notified. And while it works there can also be a point of diminishing returns. It is not at all uncommon for the volume of mail to lead to the feeling that the letters never have any substantive material. This fosters an almost apathetic approach to the next letter that leads to missing key pieces of information such as notification of ability or an appeal.

That same feeling of apathy can develop in relationships within a business. Sometimes it’s not a lack of interest that creates the problem but rather putting too much unchecked trust in someone responsible for something as important for payroll. In any business, the owner carries the ultimate responsibility for ensuring that payroll tax obligations are met and met timely.  Although someone can be hired for a specific skill like accounting, a business owner cannot delegate responsibility for employment taxes. There is no way to move that burden. A business owner will always be in a position to know where their company stands with its payroll tax obligations if this is clearly understood. 

I recommend to my clients nothing short of weekly meetings, even if they are quick, to review the critical functions of their company. With many small businesses, there are going to be some issues. Knowing about the problems so they can be addressed is vital to getting back on top. Let us be of assistance when it comes to answering any of your questions by

Let us be of assistance when it comes to answering any of your questions by contacting us now, we are always here to help. You can also learn more about payroll tax issues, here.

Sometimes the Best Advice is Tough to Give

Recently, I came across an article on a major clothing company highlighting a payroll hiccup during which the employees went temporarily unpaid. From the sounds of it, this company has been facing money problems for quite some time, ultimately filing for bankruptcy protection in October 2015. The company chalked up the problem to a procedural error by a global banking and financial services company, specifically stating that its money woes had nothing to do with it.

Whether the company’s line is true is not the point. Let’s assume for a moment the worst, that the payroll problem was related to the finances. Then, let’s take a moment to applaud them for making the responsible decision to hold the net payroll, temporarily, until all of the payrolls related obligations could be met.

A company’s ability to fulfill its payroll tax obligations has a direct impact on the company, the owner, investors and the employees. It affects the company’s very existence. The responsibility to collect and remit payroll taxes is statutory, required by law. The law states that a company has the burden to collect and remit payroll taxes from its employees when the employees are paid. Therefore, if payroll is delayed so is the obligation to remit the tax-related aspects of the payroll.

It goes without saying, but running a company with employees carries a host of responsibilities. After all, a company’s employees rely on it to provide for their general well-being. But, to a business owner, the importance of trust taxes, specifically payroll, cannot be overstated. Therefore, when beginning a new representation case, it is critical to introduce an educational component to the work. It’s imperative for clients to understand how to make good decisions in the face of financial distress. We understand that it’s certainly not easy to have a conversation with employees about a payroll being held. After all, those people are likely counting on it because of obligations of their own.  Nonetheless, this can be the correct decision in some cases.

Holding a payroll is not the only answer and in some cases can be the wrong answer to a tough spot. But compared with the fallout from missing a payroll tax deposit, such as an IRS levy, it can actually prevent a bad situation from getting much worse. Dealing with IRS Collections is about ensuring that a company facing duress survives for everyone involved over the long term. The questions about what to do and when make it vital to have a qualified and competent professional to lean on.

If you are a business owner and find yourself facing a payroll problem, make it a priority to give us a call today. The longer you wait, the more complicated and difficult your situation can become. If you happen to be a tax professional with a client who could use our assistance, either contact us directly or fill out our client referral form, here.

“I’ve Got My Tax Liability Under Control”

Over the nearly 20 years that I have been in practice I can’t tell you how many times I spoke with taxpayers believing that they had their resolution under control by making voluntary payments.  These soon-to-be clients suffered from all too common misperception that these payments would in some way deflect attention from their case or cause it to be put to the bottom of the collection pile.

Unfortunately, they couldn’t be more wrong and it’s usually a levy or lien that brings about the realization.  Yes, of course, voluntary payments are important to paying unpaid taxes.  In fact, they are the first thing I recommend in nearly every case, especially employment tax cases.  But to think that voluntary payments alone will alter the course of one’s case can be a huge miscalculation.  State and IRS collections are done by system.  They’re not whimsical or based on good faith.  Until a tax liability is paid in full or a formal resolution, such as installment agreement, is agreed to the collection process moves forward exposing taxpayers to liens and levies.

Just recently, in fact, I encountered this very situation.  A taxpayer came to me at the end of last year irate about being levied by the IRS.  The company owes the IRS just over 100k in employment taxes but the owner of the company had been making voluntary payments of $2,000 per month.  He hadn’t spoken with the IRS but had noted less mail was coming since beginning the voluntary payments.  He was angry that the levy followed his very obvious effort at resolving the situation.  Unfortunately, this taxpayer had assumed that his payments had directly influenced the IRS’ lack of urgency with his case.

Immediately, I began my effort of educating the taxpayer about the collection process.  Most every state and definitely the IRS has a set protocol for collecting unpaid taxes.  The process begins with notification of a balance due, letters with an increasing demand for payment and ultimately assignment to a field personnel for collection.  Every collection case goes through this protocol until the liability is paid or a collection determination is made.  A collection determination means the state or IRS’ decision on how the liability will be resolved.  A tax practitioner’s goal is to mold and influence that collection determination within the rules to their clients’ best interests.

The point here is that making voluntary payments, while advisable, does not alter the collection process.  Short of full paying the liability proactive and consistent contact with the authorities is not just recommended but required in order to ensure that a client remains protected from enforcement action.

If you find yourself in this situation, it is now more important than ever to get in contact with us. We are always here to answer any questions that you might have about your particular situation. Make it a point to contact us today so that we can get your life back on track.

Spending Bill Increases IRS Funding

In a rare success story relating to the IRS budget, President Obama signed into law on Friday a spending bill that provides an increase in funding to the Internal Revenue Service.  According to an article written for The Hill, Naomi Jagoda explains how the $1.1 trillion omnibus provides an additional $290 million for the IRS, an increase of 3 percent over the last fiscal year.

The IRS budget has been in a free fall ever since the controversy erupted over the agency’s heightened scrutiny of Tea Party groups.  In fiscal year 2015, Republican law makers continued the trend by slashing another $346 million – a budget at its lowest level since 2008.

The Center on Budget and Policy Priorities conducted an analysis of IRS numbers back in September.  The analysis notes that since 2010, the IRS’ budget has been cut 18% after adjusting foMoneyr inflation.  The result is over 13,000 fewer employees, lowest individual and business audits in more than a decade and fewer than half of customer service calls being answered.

In granting the boost to the budget, lawmakers specified that the funding is to be used for “taxpayer services to ensure that the agency responds to taxpayer questions in a timely manner, and to improve fraud detection and prevention and cybersecurity,” according to a summary from Republicans on the House Appropriations Committee.  Despite the compromise that lead to the additional funding, tensions are still running high between Republicans and the IRS with four articles of impeachment introduced in October still looming over the Commissioner of the beleaguered agency.

While the funding increase seems to signal a sign that some recognize the difficulties that the political infighting has created for taxpayers and practitioners, there is still quite a bit left to be done before the IRS can operate in a more proactive capacity.  What’s more, new laws will inevitably stretch the IRS even further than before. For example, the Affordable Care Act, private debt collector provision of the transportation bill as well as initiatives like the passport revocation program and return preparer licensing.  To address meaningful reform within the IRS, lawmakers have to restore the IRS’ budget to a level that allows it to realistically address its mission.


New Law Broadens IRS Enforcement

Fun in the sun in Mexico?  Maybe not if you owe the IRS back taxes.  On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, also known as the FAST Act.  What does that have to do with taxes and your ability to travel?  Everything…

The FAST Act includes a new provision in the Internal Revenue Code (IRC), Section 7345, titled Revocation or Denial of Passport in Case of Certain Tax Delinquencies.  In short, the law says that the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt. 

So, what is a “seriously delinquent” tax debt?  The bill defines a seriously delinquent tax debt as one that is unpaid and legally enforceable, in excess of $50,000 (including penalty and interest) and has been assessed along with a Notice of Federal Tax Lien or Notice of Levy.  The $50,000 limit with be adjusted each year for inflation but still is a relatively low number especially considering the inclusion of penalty and interest.  After all, penalty alone can accumulate up to 47.5% and interest compounds daily.

Thankfully, there are exceptions to the rule.  A taxpayer that is subject to an Offer in Compromise, an installment agreement, due process rights or innocent spouse relief will not be affected.  But how the IRS will ensure those that are exempt raises the practical question of how exactly this information will be communicated to the State Department.  The law indicates that the State Department must rely on Treasury for a list of those taxpayers that may be affected by this law.  How often will the IRS send a list?  Will the list include every taxpayer owing over $50,000 or will the IRS set a higher bar, at least initially?  And what about a taxpayer listed by mistake or one that pays the tax debt? The concern then becomes: how quickly can they be removed.

Only time will tell how the IRS chooses to employ this new power.  And there is some question about whether a taxpayer that lands on the list will challenge it in court.  In the meantime, it behooves every taxpayer that could fall into this category to reach an understanding on repayment with the IRS as soon as possible.


Dilemma Posed by Tax Extenders

Every year tax professionals around the country hold their proverbial breath waiting for Congress to take action on the tax code.  And almost as sure as the sun coming up, Congress avoids permanent tax policy discussions by agreeing on and passing a series of tax extenders.  Tax extenders are the common term for what are a set of temporary corporate and individual tax breaks. The extenders are usually passed with the goal of assisting taxpayers and stimulating the economy.

The dilemma posed by tax extenders often centers on tax planning. With most extenders lasting one or two year, consistent and proactive tax planning advice can be difficult to give. For example, quite a few of the current extenders up for debate expired in 2013 but were reinstated for 2014 in December of 2014 (Russell, Accounting Today). The idea that that if a tax law goes into effect two weeks before the end of the year should be inconceivabBlank Notebookle. And yet, Congress puts American through it almost every year.

As is stands, tax professionals have no choice but to offer planning advice on what Congress will “probably” do based on past years of doing the same.  Is that good planning or educated guessing?

Perhaps you have a client who could use our assistance, or have questions that we can help you answer. Click here to get in touch with one of tax experts, today.

IRS Trying to Make Good on Preventing Unpaid Employment Taxes

Federal Tax Deposit Alerts (FTD Alerts) bring to light an employer’s declining payroll tax deposits.  The goal of the alert was to have the IRS meet with employers, determine the cause of the declining deposits and ensure that the employer maintains compliance.  As the IRS budget suffered year after year since 2010, so did the effectiveness of the FTD alert system.  The system has relied almost entirely on a mail campaign, but that is about to change.

The IRS recently announced that as a part of its Early Interaction Initiative, Collections “work plans have been adjusted to allow field officials to work more FTD alerts more quickly.”   As a result, “The number of cases assigned to Field Collection will increase under the Early Interaction Initiative.”  Business taxpayers, especially those with preexisting liabilities should be expecting more surprise knocks from IRS Collections this year.  For years, the IRS has employed FTD alerts as a tool to combat accruing employment taxes.

Despite the fledgling FTD Alert program over the past several years, the IRS has been consistent in one message concerning employment tax and that is, “Applying the tax laws with fairness for all requires that the IRS address payroll tax delinquencies as soon as possible.”  In light of the IRS’ budget woes, it’s natural to question the sustainability of this plan as well as Collections core functions.  Yet, the IRS’ announcement appears to signal that the IRS has a plan in place and is serious about making this work.

It is now more important than ever to get in front of your tax issue sooner rather than later.  The last thing you want is to be caught off guard when the IRS comes knocking on your door.  Fighting on behalf of taxpayers just like you is what we do every day – make it a point to get in touch with one of our tax experts so that we can begin to evaluate your case, today.

If you’d like to read the IRS announcement in full detail, click here.

Final Notice, Notice of Intent to Levy

For some taxpayers the regular notices the IRS sends out about a balance due serve merely as a reminder or even nuisance about an unpaid tax. And there are other taxpayers that interpret even the tamest IRS collection notice as a threat of enforcement. In fact, both interpretations of the IRS collection notices probably have some truth. What is important is to know which letters are the most important and why.

In this piece I want to highlight what I believe to be the most important letter in the IRS collection process, Letter 1058. This letter is titled very specifically Final Notice, Notice of Intent to levy and Notice of Your Right to a Hearing. The exact same message and rights can be presented as an LT 11, CP 297 and CP 90.

I refer to the Letter 1058 (as well as the above-referenced notices) as the Final Notice. The Final Notice is a critical step in the collection process because it presents for the first the IRS’ right to take enforcement action such as the levying or accounts.

The Final Notice offers a taxpayer 30 days to file a Request for Collection Due Process or Equivalent Hearing (CDP), Form 12153. That appeal gives the opportunity to discuss collection alternatives with the Appeals Division of the IRS. If a taxpayer or its representative fails to file an appeal the IRS will have the right to take enforcement 45 days from the date of the letter. The 45 days allows additional time for the mailing of an appeal executed timely on the 30th day.

Despite the upside that may come from filing the appeal mentioned above it may not necessarily be the most appropriate action. The filing of an appeal in response to a 1058 will stay certain statutes of limitation relating to bankruptcy and collection. Furthermore, it could create a situation in which a business taxpayer is even more vulnerable to enforcement like in the case of a Disqualified Employment Tax Levy. And finally, the filing of an appeal may simply delay a case that could be resolved another way as it winds it way through the appeals process.

Above all Letter 1058 or the like cannot be ignored. If a taxpayer or its representative receives this letter it is important to immediately consider where the case stands. Thought should be given to the pros and cons of filing an appeal and contact should be made with the collection representative that issued the letter.