IRS Payroll Tax Violations – What Are IRS Payroll tax violations and How Do I correct Them
IRS payroll tax violations occur for many reasons. Some employers take withheld payroll taxes to fund business operations. Other employers use the withheld employment taxes for their own personal benefit. Either way, the IRS sees these acts as stealing from the government and treats payroll tax violations very seriously.
What are payroll taxes?
Employers are required to withhold income taxes from their employee’s pay. They must also withhold employee FICA taxes (Federal Insurance Contribution Act), which include social security and Medicare (hospital insurance). These amounts withheld from an employee’s salary for the Federal income tax and the employee share of FICA taxes and amounts contributed by the employer for the employer share of FICA taxes and unemployment taxes are known as employment taxes.
Additionally, employers are generally required to file employment tax returns, forms 940 and 941 on a quarterly basis. See the IRS website for IRS help on employer filing requirements.
What happens when there is an IRS payroll tax violation?
Employers or payroll service providers that violate the withholding requirements are subject to civil sanctions for willfully failing to deposit employment taxes. A delinquent employer will receive a series of notices demanding payment. If no payment is received, a revenue officer is generally assigned to the case fairly quickly. Revenue officers will then attempt to collect the taxes due using various collection tactics, such as steep penalties, garnishments, levies and tax liens.
An IRS revenue officer may also assess a trust fund recovery penalty (TFRP) against anyone who was responsible for not paying the employment taxes. The amount of this penalty is for the employee’s portion (not the employer’s portion) of the employment tax not deposited. This portion is what would have been the withheld and deposited income tax and FICA. The debt then is attributed to the person responsible and becomes a tax debt on their personal account.
Additionally, noncompliant employers or payroll service providers can be subject to criminal investigation which can then be referred to the U.S. Department of Justice (DOJ). If the case is accepted, the DOJ will prosecute the case in Federal District Court. Under I.R.C. Section 7202, a taxpayer that fails to collect or pay tax can be guilty of a felony punishable by a fine of up to $10,000, up to five years in prison, or both.
How do I correct a payroll violation
The IRS continues to be in hot pursuit of those who violate employment tax laws. If you are in violation and have payroll tax problems, get compliant as soon as possible by filing all employment tax returns and making deposits to get current. If this is not possible and you get behind, be sure to file and make deposits for the existing quarter moving forward.
For that one noncompliant quarter or quarters, there may be some options. Hiring a reputable and competent tax attorney is the first step. They are experienced in negotiating potential settlements (called an offer in compromise) or getting the business into an installment agreement that it can afford. There are also many other options to consider.
A tax lawyer can also assist in preventing the trust fund recovery penalty in being assessed against non responsible parties. If nothing is done, an IRS revenue officer can move forward and empty all business bank accounts, take business assets and ultimately shut down the business.
Taxpayers needing tax help with payroll tax debt relief should seek the advice of a tax attorney. The Federal Tax Attorneys at Delia Law have many years of IRS tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation for tax resolution at (619) 639-3336. We look forward to helping you with any of your IRS payroll Tax violations.