Everything You Need To Know About Resolving The Issue Of Unpaid 941 Payroll Taxes

You have failed to pay your 941 payroll tax. It happens, way too often. It’s not a good decision but it does happen, I understand why, and you are not alone. But it is accruing weekly and it’s very deadly. Why deadly?

Deadly, because the 941 tax creates an impossible to avoid enticement, a trap, for below break-even operations. The tax payment is voluntary so how easy is it to decide to skip this week’s 941 payment and pay the phone bill instead (or whatever bill is most important to your survival at that moment)? You rationalize that if your phones gets turned off you are out of business, so you will pay the phone bill and not the payroll tax and hopefully make it up next week.

We all know what happens, right? Next week never comes as you are still operating below break-even and will probably not catch up soon enough to avert disaster. Eventually, the IRS catches up, as they always do. After a while, with a progression of notices warning you of the obligation and their intent to collect the tax due, you are finally sent notices that read, WE INTEND TO LEVY. That’s like the noise from a rattlesnake warning you before it strikes, a warning you should not ignore.

The IRS will sweep your accounts, typically on a Friday, catching your payroll and everything in all your operational accounts. Monday will not be very pleasant as your employees will be quite upset not being able to cash their checks. Nor can you operate effectively as everything floating will soon bounce. Now you have to replace the cash for everything you wrote checks for in order to reach zero before you can write the next check, and oh yes, it is also possible that your account is inoperable for a while as you work this out.

Be aware, while the code does not permit the service to levy and remove cash from your payroll account, they do it anyways. If your payroll account is levied and swept clean, you must call the IRS office handling this matter immediately and demand that the payroll money be released. You will have to prove that they levied your payroll account and that cash will be released immediately. Once satisfied that it is a payroll account, the IRS will fax your bank a release and the payroll account will be unfrozen, removing the levy for that purpose. That’s one emergency off your plate, however, the damage is done. Your employees are out looking for other jobs.

Some banks take this very seriously and will close your accounts should this happen. It also becomes very difficult to open new accounts in other banks with this occurring, as it becomes a permanent record on your credit history and other banks will refuse to open new accounts because of this. Now try and operate under that cloud. This is a nightmare getting worse by the minute. Here is what YOU can do to alleviate the situation if you choose to handle it yourself:

1. You must immediately call the IRS office handling your account and ask for an agent in the collection department. Tell them you have been levied and want to work this out. If an agent has not yet been assigned, this may be an early stumbling block until you get an agent assigned who can handle your issues. Ask for a manager for assistance if there is no assigned agent.

2. The agent will check a few things first to determine what your situation is. He will ask if you have filed all the required tax returns due from the offending business entity. Hopefully, the answer is yes. If it is no, you will need to have everything filed before they can work with you and they will continue to collect until resolved.

3. You must be current for two consecutive quarters before they can work this matter out with you. If you are not, you have to figure out how to become current for the prior two quarters before they will enter into a payment plan, and that is the objective–a payment plan for what is owed. There is no compromise procedure under the existing circumstances. Please do not forget, you must remain current throughout this entire process or you will be shut down faster then you can blink an eye. The IRS takes trust fund abuse very seriously and they will liquidate your assets, putting you out of business and possibly out of your house if you fail to resolve this matter and stay current during the entire process.

4. You must fill out form 433B (the collection form for your business) for the IRS which will help them determine how much they can extract from you while you pay off the arrears. (This form 433B is available online or your IRS office will provide it to you.) The 433B will require some back-up documentation for what you are claiming are your cash flow requirements so be prepared to document whatever you are claiming on the 433B form. Depending upon your 433B information, the IRS will permit a rapid payback of the unpaid, past due payroll taxes. This payback schedule is negotiable but is also based on the information provided. Your business will remain in lien until the final payment is made. Be careful, they will ask for a list of current receivables and if all does not work out to their satisfaction, they now will know exactly where to go to seize receivables, and they will.

That’s the good news. They will permit a monthly payback program for what is owed–all of it, penalties and interest and corporate contribution as well as trust fund money–everything you were supposed to pay and did not and more, much more, as often the penalties and interest are more then the tax you failed to pay in the first place. Please keep in mind that you are accruing interest throughout the payback program and every payment goes to past interest and penalties and current interest first before your unpaid tax is credited. If your debt is large, or old, it will take a lifetime to pay off.

6. Then, there is the responsible party issue. Whoever is deemed a responsible party, presumably the person who signs checks or makes the decision as to what is paid and what is not, is deemed the responsible party. Your secretary or administrative assistant, or even your wife if she is in the business and writing checks, could be held responsible and then you have real trouble as every responsible party is held accountable for the entire debt and will be collected from if an arrangement is not entered into. That person is then personally levied for the entire payroll tax due, meaning the responsible party’s personal assets are also available for liquidation to support the payback of the unpaid 941 payroll taxes. You, and every other responsible party, will be asked to fill out a 433A for collection. Again, this allows the service to compute what they can extract from you on a monthly basis to clear this debt.

There may be other options, but these are best determined by a specialist who knows how this all works out and who will review your entire situation and make a proposal to you to resolve this matter. I would be delighted to review your situation and recommend some alternative options that may work much better for you should you believe that paying it all and representing yourself may not be the best plan available. The 100% civil penalty, it is called. I await your call.