Tax Debt Solutions Blog

IRS Penalties | Business Employment Taxes

What do I do about IRS collections for a closed business?

Sometimes, a business may be in debt to the IRS with employment taxes and will therefore be subject to IRS collections even if that business has closed down. The worry for those previously involved in the business is that they could be held personally responsible, and IRS collections could therefore be directed towards them.

If a business is closed, the IRS likely will not be overly interested in it. In most cases, the taxes owed by the business will have been deemed as not collectible, so long as the business closed in the normal way and no suspicious activity had taken place. Any notices you receive about IRS collections are most likely automated, since these are simply sent out when taxes are owed, regardless.

If there was a decision to not pay the IRS for employment taxes, it is possible that they will demand payment. If you have been deemed as one of the people who decided to not pay the tax, the IRS will likely issue you a trust fund recovery penalty. This will be given to the business too, but of course, it is most likely that it cannot collect anything from the business – so it will have to come from those personally involved and held liable for the withheld payments.

The important thing to know about this is that if one person pays off the full debt, no one else will have to pay anything. You should note however that the IRS manages to collect very little from its trust fund penalties. In fact, from 2002 until 2007, it only collected 13.5% of the value of trust fund penalties, which is a figure that might be able to ease your worry slightly if you find yourself in this situation.

IRS Penalties: Defaulting on your Installment Agreement

Don't break your deal with the IRS!

When you set up an installment agreement, you are making a deal with the IRS by which you are telling them you will be making monthly payments towards paying off your tax debt within a certain time period. However, if you do not fulfill your agreement, you will end up with an IA (Installment Agreement) default.

When the IA default occurs, you will receive a notice of default from the IRS (entitled as a ‘Notice of Levy’). Once you have received this, you are given exactly 30 days to make an appeal against it so you can negotiate with the IRS about an installment agreement. Otherwise, the IA default will be enforced and your installment agreement with the IRS will end after the 30-day period and they will try to collect what you owe!

So long as you file the appeal within the 30-day period, your installment agreement will be valid until your case has been heard and a decision has been made, in accordance with the law.

If you win your case, your negotiations with the IRS will protect your assets, your income, and your bank account from being levied while they are taking place. During this time, you should ensure you give the IRS up-to-date information about your financial situation, which hopefully will stop the IA default from being enforced.

If you have no ability to pay the IRS back and your appeal is rejected, you should consider other options, such as an offer in compromise, filing for uncollectible status or declaring yourself bankrupt. These can be effective alternatives however; the best option depends entirely on your personal situation.

Important Facts Regarding IRS Tax Audits

IRS Tax Audits Are The Rise

None of us can be certain the IRS won’t call after taxes have been filed.  The fact is, audits are going up every year.  The IRS wants to improve ways to catch delinquent taxpayers.  $400 million is set aside for IRS enforcement of tax in 2010.  Notifications of audits are sent out eighteen months following the filing date.  An audit this time round is due to your 2008 tax returns.

It is to your benefit to take action as soon as you are aware of a tax difficulty.  You have thirty days following a first notification to respond to the IRS.  If you don’t reply within the thirty days, substantial tax penalties will be issued to your account by the IRS collections department.  In the event that the thirty day grace period is insufficient time to sort out your affairs, apply for a postponement.  Normally, the IRS will be amenable if you have to find relevant records.

An audit can become complicated for the average taxpayer.  It does help your case to have the assistance of a certified tax professional to guide you through all the twists, turns and demands of an IRS audit.  They may request complex documentation that needs specialized help.  In the case of a person to person meeting with the IRS the tax professional will represent your case and avoid unnecessary mistakes.

It is important to understand that an in-person meeting with the IRS for the purpose of an audit is like being in a court of law.  ‘Anything you say can and will be used against you in a court of law’- this is not an exaggeration and you may even end up being accused.  It’s advisable not to say anything and leave it to the tax professional representing you.

If you are not satisfied with the auditor’s conclusion, you may ask to speak with their supervisor and request an appeal.  The IRS will comply only if they see they can’t win in court.  However, there is no point in using the legal system for an amount under $10,000.

Escape Tax Debt Through Tax Evasion?

To The IRS A Tax Evader Is A Tax Evader

It has been noticed that over the years many well known personalities don’t pay or even report their taxes.  This is, of course, against Uncle Sam’s law.  These personalities are brought to book and one such example of this type of circumstance is Tsen Toma.  Towards the end of the nineties, this person operated his own business called Tomo Painting Construction.  It was this business that caused Tsen Tomo to be indicted for tax evasion.

Tsen Toma was indicted because when he got checks from customers as payment for services rendered by Tomo Painting Construction, he cashed them.  However, that cash was for private use.  The checks were cashed at various check cashing establishments.  The checks he cashed came to over a million dollars but Tsen Toma did not keep any verification in the form of receipts.

He continued to do this over a period of three years but his business records didn’t show the check payments and nor did he not notify the IRS on his tax return.  In the 1998 tax year, Tsen Tomo did report a taxable amount of $29,901.  However, the IRS discovered the amount should have been $452,244.  This adjustment by the IRS resulted in extra tax of $168,718.

According to media releases Tsen Toma departed from the United States while under investigation by the IRS.  This action led him to be placed under arrest.  The arrest was carried out at Kennedy Airport on his return from the country of Taiwan.  This happened on 24 November.  The consequences of Toma’s actions could result in a prison sentence of five years and also a $25,000 or two times the gross gain emanating from the offense of tax evasion.  This shows taxpayers that Uncle Sam does not tolerate tax evasion by any person in the United States.

Don't evade your taxes. Tax debt is no laughing matter.

Tax Penalties Gone Wrong

Aware or Unaware Uncle Sam Comes Calling

Could there be anything more unexpected than one or more IRS agents making a call at your place of business?  This was played out at a Sacramento car wash.  The amount in question was a four cents payback in 2006.  Two IRS agents informed the offender four cents x four years totaled $202.35 including penalties and interest.

Peter Pappas, a tax lawyer, explains how four cents turned into $202.35.  The IRS used the offender’s original tax bill to start calculating.

Even after being visited by two IRS agents the offender retained his good nature, paid his dues and offered clients a basic car wash for four cents on 15 April.  Anything more went to a Sacramento charity.

Tax penalties keep increasing on any overdue bill no matter how small.  Be aware:

• Missing a file deadline may incur a penalty for failure-to-file.
• Non-payment by due date may incur penalty for failure-to-pay.
• Usually failure-to-pay is less than failure-to-file penalty.  You must still file a tax return.
• Every month or portion of a month of late return gets 5% of taxes not paid in penalties but not higher than 25%.
• If return is recorded in excess of 60 days following due or extended due date, smallest penalty is least of 100% tax unpaid or $135.
• ½ of 1% taxes unpaid every month or portion of month following due date of taxes unpaid can be penalized up to 25% of taxes unpaid.
• If minimum of 90% of real tax bill by due date is paid and extension recorded no failure-to-pay penalty if balance paid by extended due date.
• If in any month there are failure-to-file and failure-to-pay penalties the failure-to-pay penalty lessens the failure-to-file penalty by 5% but a return filed in excess of 60 days following due or extended due date the smallest penalty is least of 100% of tax unpaid or $135.
• If you can prove failure to file or settle on time wasn’t due to neglect but for a realistic reason, no failure-to-file or failure-to-pay penalty required.  

Tax Relief: Guard Against Three Unexpected Levies

 

Three Unexpected Levies

Section 6330 of the Internal Revenue Code demands that the taxpayers are given a prior warning of thirty days if the IRS intends to seize or levy property.  A final notice is a letter with the heading ‘Final Notice of Intent to Levy’.  Once it’s issued the taxpayer may lawfully ask for an IRS appeals conference to halt and challenge the planned collection act.

 

It is important to know there are three situations when a prior IRS warning is not required.

 

Jeopardy Levy is when the IRS thinks your measures will place tax collection at risk.  If so, they don’t have to issue a prior warning.  If assets are hidden, dissipated, transferred to a third party or moved out of the US it is considered a collections risk.  Due to instant damage, the IRS may lawfully seize your property without any warning.

 

State Tax Refunded Levy arises when the taxpayer is indebted to the IRS but has a state income tax refund.  In such a case the IRS may lawfully take it without prior notification.

 

Disqualified Employment Tax Levy occurs if a taxpayer ‘pyramids’ employment tax responsibilities.  This takes place when an employer doesn’t pay the IRS tax withholdings from its employees on a regular basis.  The employer makes use of that money for cash flow during periods of difficulty.  Both Congress and the IRS view this in a serious light.  They make this an exception to the normal requirement of notification prior to levy and seizure.

 

If you receive a Final Notice of Intent to Levy to gather an older period of tax under appeal, then a Disqualified Employment Tax Levy becomes participatory.  The new tax period could be levied with no notification if in the two years after your appeal you pyramided your employees’ taxes and therefore incur new tax bills.

 

Apart from the three exceptions the IRS is not obligated to provide another notice after a Final Notice of Intent to Levy for a specific tax period is issued.  To avoid unexpected levies always know your place in the procedure and you must reply to all IRS notices.         

Tax Relief: SOS to Ease Tax Burden

It has been established that many tax payers are behind with tax returns.  In fact, many are from four to eleven years behind.  This means there are many Americans under a great deal of stress to get on top of their tax deposits.  This is a situation that has been around for many years.  Now, there is also a weak economy causing unemployment and all the added financial burdens that go with it.  This means there are growing numbers of tax payers who can’t pay their taxes by 15 April.

 

Regardless of how burdened you may feel it is advisable to remain in contact with the IRS rather than avoid them.  Your situation may be bleak right now but you are entitled to specific rights and with a little tax knowledge you can improve your position with the IRS.

 

The starting point is to know you have the right legal help if necessary.  If you don’t file a tax return then the IRS will resort to filing a proxy for return.  If they do then it is highly likely they will overstate the amount you owe in taxes.  An overstatement will result in interest and also penalties.  The best way to avoid this situation is to file your own returns and give them the correct amount you owe.

 

Another consequence of not filing is the 143 penalties used by the IRS.  If for any reason you have experienced events that are life changing.  Events that may be accepted by the IRS as valid are loss of employment, divorce, chronic illness and closure of a business.  If such situations are the cause of you not filing a tax return the IRS will assist you and also overlook appropriate penalties.

 

Should you receive an IRS letter of notification don’t turn a blind eye because they will not forget.  It is possible to strike a deal with them so that you are able to catch up and pay your legal taxes, and achieve tax relief.

Tax Relief: Can A Tax Attorney Save Me Money?

The basic answer to this question is “Yes”.  If you even slightly think you may need a tax attorney, it's definitely a good idea to begin doing some research and finding a service that can provide you with one that is very knowledgeable and can answer all your questions right away as well as give you some details about similar cases.  Usually the tax attorney will give you an estimate of what you will be able to save if you use their service.

A tax attorney probably won't be needed if you accidentally messed up some tax forms and are more than happy to fix it.  They are best suited for people with penalty fees and interest that is accumulating so fast, you simply can't pay it and it begins to affect your life in a negative way.  It's very difficult for your average person to talk to an IRS representative in a constructive way that both parties can agree on.  A tax attorney provides tax relief for a living and their main goal is to get you great results and get them quickly.

If you are deeply in debt to the IRS, a good tax attorney can sometimes help get your debt settled for pennies on the dollar so you could save thousands or even tens of thousands of dollars in some cases. If your wages are being unfairly garnished, they can also help you get that garnishment reduced to a much more manageable rate.

Most of the time, you will be able to get a free consultation that is free of charge or very cheap so you should take advantage of that and see if this course of action is right for you.  A little bit of your time could make a world of difference in your finances.