Over the past several years, I have been frequently asked the same questions. So, today I’d like to answer a few of those questions in the hope it helps those who might be affected.
It is a common occurrence for a business to be unable to pay its payroll taxes. The thinking is that the business will turn around or a customer will pay and the business will then have the money to pay its past due payroll taxes.
This frequently does not occur, and the business cannot pay the payroll taxes, which have been significantly increased by penalties and interest.
The IRS holds businesses that withhold payroll taxes from employees but do not pay them to the revenue service in great contempt. The revenue service sees them as thieves and is aggressive about pursuing the business.
If the business cannot pay, the IRS will routinely assess about two-thirds of the payroll tax liability against the individuals who were responsible and acted “willfully.” The legal standard is very low. The revenue service uses a shotgun approach and will assess anyone that it suspects of this.
In addition, if the nonpayment continues, the IRS can pursue criminal penalties against those same people. There is a series of notices that are sent to them to establish their knowledge and thereby lessen its burden of proof.
This is a serious matter. If you’re involved in any way with a business that has not paid its payroll taxes, get help early.
The IRS requires U.S. citizens to who have signature authority over a bank account in a foreign country to report that to the IRS each year. The report is due on or before June 30 of each calendar year for accounts exceeding $10,000. There are very stiff fines for this, and if you willfully fail to do so the fine can be the greater of $100,000 or 50% of the balance in the account at the time of the violation. Wow.
This rule applies to citizens of the United States and to residents or a person doing business in the United States.
This is a very serious financial risk to someone in this position. The IRS may be able to prove much of the liability simply by interviewing the individual.
Folks, this is a very complicated area of tax law that involves a great deal of financial risk. If you are in this position, you should consult with an experienced tax attorney right away.
If you are audited by the IRS, the agent will frequently ask you to extend the statute of limitations to the audit. There are multiple reasons for this, but primarily the agent may be concerned that he or she cannot complete the audit before the statute of limitations on assessment runs out.
I am frequently asked if we should extend that statute of limitations. This, too, is a complicated answer, but let me say this to start out. Do not believe for one moment the threat from the agent that he or she will disallow all of your deductions if you don’t. That heavy-handed threat actually works against the government auditor. Again, there is no hard and fast rule as to whether or not you should extend the statute of limitations, but you should do so with your eyes wide open about the consequences. Again, it’s important to get the advice of a competent tax adviser to help you make that important decision.