Payroll Tax Problems

Payroll Tax Problems Related Information:

The tax that a company withholds from the employees paychecks to pay the IRS is known as the ‘trust fund’ as it holds the money in a trust for the government or also commonly known as the payroll taxes. If any company fails to pay these payroll taxes to the IRS, they may have Payroll Tax Problems.

Types for Payroll Tax Problems

Payroll tax problems can be of different kinds; the common ones being:

• Failure to file form 941 tax returns for different quarters.
• Failure to file form 940 tax returns for preceding years.
• Filed the necessary payroll returns, but failed to pay the payroll taxes.

Any or all of the above can cause a company or an individual to have payroll tax problems.

Reasons for Payroll Tax Problems

Payroll tax problems usually occur as a result of the following actions:

• Not enough profits for a company to pay the payroll taxes.
• Low profits causing the payroll taxes to be spent in the business.
• Paying the payroll taxes to another creditor besides the IRS.
• Willfully withholding the payroll taxes from the IRS.

If your company has payroll tax problems for any reason, the IRS can hold you as a ‘responsible party’ in the non-payment of payroll taxes.

What is a Responsible Party?

Any person who is directly or even indirectly related to the payroll tax problems can be held liable as a ‘responsible party’ by the IRS if they can prove the following two conditions:

• Responsibility: This is the first aspect that has to be established to hold a person liable for payroll tax problems. Under Section 6672 of the Internal Revenue Code (IRC), anyone who has control of the finances of a company, and has the power to control the decision-making process by which the company gives the payroll taxes to other creditors before the IRS, is responsible for the payroll tax problems. Those whose duty it is to see that the payroll taxes should be paid to the IRS are also liable for non-payment. This usually is the duty of executives in a company who have all-purpose control over the company affairs and who play a part in evaluations concerning payment of creditors and distribution of funds.

• Willfulness: To prove willfulness it is not necessary that a responsible person needs to have failed in paying the payroll taxes with a deceitful or immoral reason. That person just has to be shown to have deliberately and purposely overlooked their duty to pay payroll taxes to the IRS. Thus ‘Willfulness’ can be defined as 'any act is willful if it is done knowingly, consciously, and deliberately; and it need not be intended to be fraudulent’.

Thus any person in the company, or even a person who is not an employee of the company that withheld the payroll tax; but if they were ‘responsible’ and knew about the non-payment and ‘willingly’ did nothing, then they can be liable for penalty and recovery of the payroll taxes.

Penalty for Payroll Tax Problems

The IRS can recover the money from anyone or all the ‘responsible parties’ for non-payment of payroll taxes. Such a penalty is based on the amount that should have been collected as payroll taxes or was actually collected and not paid. Thus it is a 100% penalty. This is a civil penalty and not a criminal one.

Any person who finds himself with payroll tax problems should seek the help of a tax attorney who can negotiate with the IRS and have the taxes paid in a systematic manner and with the least penalties possible.