Unpaid Employment Taxes

Today TaxMama hears from Joanna in California with this problem. “ I’m assisting an S-Corp in California that has not filed employment taxes in over 2 years and has accumulated several thousands in back taxes. Once I complete all of their employment tax forms, what is the best course of action to take to set up a payment plan with the Feds and California State? The S-Corp does not have enough to pay the taxes in a lump sum payment.”

TaxMama answers Tax Questions

Dear Joanna,

Well this is quite a project. OK, first thing to do is to find out why the payroll tax returns were not filed. If you can find a legitimate reason, you may be able to get the late payment penalties waived. If not…oh well, they were earned.

Small business owners really need to understand that this is one of the major hot buttons for IRS and state tax authorities. After taking withholding from employees, then not filing and paying the taxes, they regard it as a form of theft. Your client will get no sympathy for his plight.
In fact, any or all of the responsible parties, including the bookkeeper, can (and have been) held personally liable for the taxes not paid. IRS has been known to issue a trust fund recovery penalty, consisting of all the withheld taxes, plus penalties and interest, against anyone they feel is responsible for the underpayment.

Once you know the total taxes, compute the penalties and interest – or ask the IRS agent assigned to the case to compute them for you.

See the Resource Box below for all links:
IRS Penalties –
IRS Interest rate –
CA Interest rate –

Here is some information on the general IRS collection process. State of California is similar.

If there is an IRS agent assigned to the case, arrange a payment plan with him or her. Typically, if the balance due is under $25,000 and you set up payments that will pay the balance off within 5 years, IRS will accept the agreement.

If the balance due is more than that…what are they doing in business in the first place if they can’t take of routine payroll filings?

In that case, I urge you to get professional help! Preferably, find an enrolled agent who used to be an IRS collections officer. They’ll have the best handle on payroll tax situations.

And remember, you can find answers to all kinds of questions about unpaid taxes and other tax issues, free. Where? Where else? At TaxMama.com

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