So you have a problem with your payroll taxes. You got the letter – “Urgent!! We intend to levy on certain assets. Please respond NOW.”
What you do next may make the difference between your business surviving or folding. The IRS has a really big gun and they do not hesitate to use it on people who try to hide, lie or talk their way out of the situation. That big gun is called the Trust Fund Recovery Penalty and it is scary – 100% of the amount due. The most important thing to do is to attack the problem honestly and head-on.
How to avoid the Trust Fund Recovery Penalty
IRS agents have a great deal of experience with being lied to about payroll taxes. In speaking with many of them, it is apparent that their first instinct is to assume that you are lying to them, and wait for you to prove otherwise.
So, as you begin to make contact, here are a couple of rules:
- Never lie to the IRS
- Always under-promise and over deliver when you make a commitment
There is no guarantee that the IRS will not impose the trust fund recovery penalty if you cooperate. However, it is absolutely certain that they will impose it if you give them a reason to do so.
What if someone promises to get payroll tax penalties and interest waived for me?
Some companies advertise that they are former IRS agents, and that they can help you negotiate your way out of this problem. I have seen some positive results and have heard about some less than ethical practitioners. Proper professional help can never hurt, but be wary of the hard sell or promises that they can get all of the penalties and interest on your payroll taxes waived.
Remember, the IRS can’t collect everything that is owed from everyone. In order to make up the difference, they collect penalties and interest to make up the shortfall. It is more common for the IRS to waive penalties than interest. If a tax practitioner is promising “to get everything waived if you send him/her your file and a retainer today,” be careful.