Category Archives: Business Taxes

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.

The Importance of Compliance

When working with the IRS Collections Division, tax compliance is fundamental to resolving any case.  Compliance in this regard refers to the filing of all outstanding returns and the remittance of required tax deposits for the current period.  This is also known as being “current.” Specifically, a taxpayer who is current can show they are capable of meeting deposit requirements.  Their representative can also argue that they should not be subject to collections and are eligible to be considered for a formal resolution.  In turn, the IRS can make a case that further accruals have stopped and they are no longer a risk to the Service.

Most importantly, compliance is a prerequisite to any case resolution.  When a case is with IRS collections, the taxpayer’s compliance with returns and deposits is subject to higher scrutiny.  The Service simply seeks to draw a line in the sand to stop accruals otherwise known as “pyramiding.” When an individual or business is current and not pyramiding, they are more likely to be protected from collections such as bank levies and garnishments.  They can be protected by being placed into “pending installment agreement status” if a formal proposal is made.  Further, an IRS revenue officer is also more likely to grant a hold on collections and work on a timeline for resolution.  Finally, if an appeal is filed, the Office of Appeals is more likely to consider their case without collections to achieve a resolution.

In its simplest form, the IRS can only formalize a resolution with a taxpayer who is compliant, for the exact periods with balances due.  If returns are outstanding or current deposits are not made, the total balance due is also unknown and terms for an agreement cannot be set. More so, after an agreement has been established, if a taxpayer does not rForm 1040emain compliant, new periods outside of agreement have been created.  This automatically breaks the terms of any agreement and the entire process must start over to encompass all periods with balances due.

For an individual, this means that all personal income tax returns (Forms 1040) must be submitted.  Keep in mind an extension to file a return is not an extension to pay.  Therefore, if a balance is expected on any return on extension, it should be filed at once so it can be included in the resolution.  In addition, if required, sufficient year to date estimated income tax deposits must be made in order to show compliance.

For a business, all payroll tax returns (Forms 941), unemployment returns (Forms 940) and corporate income or partnership returns (Forms 1120 & 1065) must be filed.  Primarily the business must show that in the quarter in which it is currently in, sufficient and timely payroll tax deposits have been made.  If current deposits are late, sufficient payments to cover penalties should be addressed as well.

Very often the IRS is also more likely to formalize a resolution for a taxpayer who is compliant in working with a third party payroll service provider.  Specifically, payroll service providers can help establish a very efficient, formal schedule for deposits and filings under the control of a business owner.  This significantly lowers the risk for accruals, which helps both the taxpayer and IRS in the future.

Overall, cases can easily turn in a taxpayers favor when they first can establish compliance.  Being current must be the primary focus of any individual or business working with IRS collections.  Ultimately, having the experienced representatives at 20/20 Tax Resolution, Inc. will make this process easier and more successful in the long run. Please feel free to contact us with any questions — we are here to help.

Are You Receiving the Proper Notices?

Before the IRS is able to issue a levy against you individually or against your business, it is required to provide you with the proper notices. But how can you be sure that you are receiving all of the correct notices up until this point? The IRS typically starts with a notice telling you there is a balance due on the particular return you filed and then progresses to a “Final Notice of Intent to Levy.” A taxpayer has 30 days from the date of this letter to either fully pay the liability or take some sort of action on the account. Otherwise, the IRS can issue a levy.

Whether you are dealing with the Automated Collection Division of the IRS or local revenue officers, they are for the most part issuing the proper notices before taking any type of action.  However, there is one specific area where notices aren’t always being properly issued.  According to the Treasury Inspector General for Tax Administration (TIGTA) this is happening when there is an additional tax assessment.

When it comes to an additional tax assessment, a completely new notice should go out, giving the taxpayer an additional 30 days before any type of levy action can occur for that particular period. Even if the taxpayer had received the final notice previously and 30 days had run by, once the additional assessment takes place the new notice trumps the old one and the 30 days would start over again. It’s important to point out that the new notice would only be for the particular period in which the additional tax assessment took place. If you owed for multiple periods, the IRS could still levy on the periods that did not receive the additional assessment.

Should the IRS ever issue a levy against you or your business on a period with an additional tax assessment and it either didn’t give you the proper additional notice or didn’t wait the statutory required 30 days, there are steps you can take to fight back and get that levy released. The good news is that the IRS is aware that it isn’t always following procedure when it comes to additional assessments and it is taking the necessary steps to correct the problem. Nevertheless, at the end of the day, it’s always important to know and understand your rights as a taxpayer. We can help.

If you own a business and are facing tax troubles, learn more about IRS levies here. Or, if you are an individual with a tax liability, you can learn more about IRS levies here.

 

 

 

Payroll Tax Problems

If you own a small business, you may have been put in a position where you don’t have enough money to cover your entire gross payroll. Whether it’s because your largest account didn’t pay on time, there was a downturn in the industry or you simply didn’t foresee this cash problem early enough, it is a situation that there’s no easy answer for.

When you’re faced with this situation, what should you do? Go to your employees and ask them to hold your check? If you want to keep your employees, probably not. Get short term financing? Beg, borrow or steal?

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Most of the time there is no good answer.  Employees need and deserve to get paid and paid on time.  What happens the majority of the time is that the net payroll is met and withholding taxes go unpaid. Obviously, this is costly.  The IRS will charge a late payment penalty and interest that exacerbate the problem.  When the quarterly 941 tax return becomes due, many people decide against filing it with a balance due for the previous quarter’s liability, generating another penalty for failure to file timely.

All of this snowballs and before you realize it, there is a significant payroll tax problem on your hands.  If you are in this situation, it’s time to act now. Contact us today and find a solution that will end this.

To learn more about business payroll tax problems, click here. 

Should Your Business E-File its Returns?

The most common way for a business to accrue a new liability is, you guessed it, for failing to file a return on time or failing to pay a required Federal Tax Deposit. There are certainly numerous factors that contribute to a business remaining current and compliant, but the easiest one to overcome is to make sure your business is e-filing its tax returns.

Early last month, the IRS reported that e-filings for businesses had increased nearly 9% from the previous year. This increase continued a pattern of growth for e-filings which have steadily risen over the past 10-15 years. While a large percentage of this increase was due to corporations and partnerships electing to e-file their returns, there are benefits to any business, large or small, in filing and submitting its returns electronically.

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Filing returns online is the most efficient way for a business to submit it returns. E-filed returns are processed more quickly than paper filed returns and allow the filer to receive a proof of receipt immediately upon filing. This service is available 24 hours a day, 7 days, and also has the option to set up a direct debit for returns which require a payment – such as 941 Withholding Tax Returns. It is also safer than mailing in returns as there is not the possibility of a return being lost in the mail. Lastly, e-filing lead to fewer errors on returns as the software for the website has a feature designed specifically to catch any mistakes or miscalculations.*Corporations and partnerships can get more information about IRS e-file at IRS.gov

Accessible tools such as these ultimately aid businesses in staying current and compliant with their filing obligations with the IRS. Being current and compliant means that all returns must be filed on time and all Federal tax deposits must be made on time and in full. In turn, this can save businesses money by avoiding the costly penalties for filing a return late or incorrectly. Staying current and compliant is a necessity when negotiating a resolution for any outstanding tax liability. Before the IRS will consider your proposal for resolution, you much show that your business is current and compliant with its filing obligations. This is also extremely important after a resolution has been reached. If, for example, a business has entered into an Installment Agreement, it must not accrue any new tax liability otherwise it risk defaulting that agreement.

Need some expert advice? Give us a call today or simply fill out our contact form and we will be in touch with your shortly.

 

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.

You Have Unpaid Sales Tax. Now What?

If you are a business required to collect sales tax on goods or services from your customers, you are also then required to report and pay sales tax to the department of revenue or state comptroller’s office in your state. Tax rates and reporting methods vary by state. For more detailed information on rates and reporting you should consult your corresponding state department.

What is common among states that require sales tax reporting and payment is that non-payment is detrimental to your business. Sales tax is considered a trust fund tax. Simply stated, your business is the “middle man” between your customers and the state. States generate revenue from the payment of sales tax and when it is collected from a business and not forwarded accordingly, the state will move aggressively to recuperate this revenue.

Penalty and interest that is charged on non-paid balances can be between 5%-50% of the balance due. The sales tax license that allows your business to operate is at risk of revocation and therefore, your business is at risk of closure due to unpaid sales tax. Not only that, but the state taxing authorities can assess the liability to parties deemed responsible for not filing and paying. Therefore, even though the tax owed is a business liability, individuals responsible for reporting and paying tax can also be held liable for the tax debt.

Even if the business closes, the tax is still owed. Typically, sales tax is not dischargeable in bankruptcy. The amount owed will be assessed to the individual or individuals found responsible. Tax liens or warrants will be filed in the business and individual names.

The first thing to do is to immediately stop accrual of tax liability. That is, file and full pay current sales tax immediately. If your business has used funds collected from sales tax to assist in cash flow, immediate adjustments must be made in order to pay current liabilities. Secondly, if any sales tax returns have not yet been filed, it is imperative that they are filed right away, even if you cannot pay them. Next, begin making voluntary payments toward the past due taxes. These efforts show good faith and make negotiating payment terms much easier and could very well save the life or your business.

The Who, What, When and How of Estimated Tax Deposits

Although Estimated Tax Deposits (“ETD”) are applicable to any income not subject to withholding taxes, the most common scenario is among self-employed individuals.  Self-employed individuals make up about 7% of the workforce.  Self-employed individuals are required to make ETD over the course of the year so that when they file their returns the following April, the tax balance has already been paid.

Who?:

The general rule is that the IRS requires ETD if you will owe $1,000 or more at the end of the year after accounting for any tax withholdings, payments or credits.  The amount you are required to pay in deposits is either 100% of the tax that you owed the prior year, or 90% of your actual tax due for the current year, which ever is smaller.  Because in most cases it is so difficult to predict the future, the most common way to calculate your required estimated tax deposits is to use the tax due for the year before.

Let’s look at an example, John is a plumber who works for a contractor that issues him a 1099-MISC at the end of the year.  John owed $4,000 in taxes in 2013 when he filed his Income Tax Return. In 2014, his ETD will be $1,000 per period so that when he goes to file his tax return, he has total deposits of $4,000.  Any additional tax balance would then be due on April 15th 2015.

Other more common example of individuals who are required to make ETD are those who receive income from alimony, gambling winnings, and annuity or pensions not subject to tax withholdings.

If you are an employee, you should make sure that you have enough taxes withheld from your wages to cover any balance due.  You can check by going to IRS.gov and searching “Withholding Calculator.”

What?:

The lesser of 90% of your anticipated current year’s tax liability or 100% of your last year’s tax liability divided into four equal payments.

When?:

  • 1st payment: April 15, 2014
  • 2nd payment: June 16, 2014
  • 3rd payment: September 15, 2014
  • 4th payment:  Jan. 15, 2015*

*You do not have to make the payment due January 15, 2015, if you file your 2014 tax return by February 2, 2015, and pay the entire balance due with your return.

How?:

Complete the applicable payment form voucher and mail it along with a check made payable to “The United States Treasury” to the appropriate IRS service center based on where you live.  By clicking here you will be able to correctly calculate and make your Estimated Tax Deposit.