Payroll Tax Problems
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We at JG Tax Group have specialized in payroll tax problems / 941’s /940’s for many years. When helping a taxpayer that has a payroll tax issue one of the first courses of action that we take is bringing the taxpayer into compliance by directing him to hire a payroll service such as ADP. The reason we do this is to prove to the IRS that the taxpayer is showing a good faith effort to not contribute to more payroll tax problems. If the taxpayer is already compliant or his company is closed and he simply has a payroll tax problem, this then becomes a collection action from the IRS. In most cases, a payment plan that is suitable for the taxpayer is implemented based upon our ability to understand the IRS tax code pertaining to what a taxpayer does and does not have to pay.
There are a lot of myths in regards to payroll tax problems with the IRS. One of the biggest myths consists of who is actually responsible for the payroll tax problem? Unfortunately, the IRS views a payroll tax problem as the worst type of tax liability to owe. The IRS will try to assess liability for the payroll taxes owed from as many people as possible. This includes but is not limited to all owners, officers, book keepers, spouses, and in some cases even the secretary who passes out the payroll checks. JG Tax Group has been extremely successful in limiting the liability for numerous individuals within the company who are experiencing payroll tax problems.
Example: We have had various clients that have owed hundreds of thousands of dollars to the IRS in payroll tax problems who were declared currently non-collectible.
We cautiously advise that no taxpayer should deal with the IRS on their own concerning a payroll tax problem. The reason behind this is because the IRS has to conduct what is known as a trust fund recovery interview with the taxpayer. They ask you very complicated questions in order to access liability to as many people as possible within the company. Answering these questions require a great deal of skill and knowledge of the IRS laws in order to limit the exposure to the responsible parties involved.
JG Tax Group has successfully been able to stop the IRS from closing any of the companies that we represent. This is imperative to know because in most payroll tax problems, the agent who is assigned to the case will immediately start seizing assets of the company which includes but is not limited to accounts receivables, credit card merchant accounts, bank accounts, equipment, fixtures and furniture. This usually means the company has to close its doors. If there is still an outstanding balance on the payroll taxes then the IRS begins collections on all responsible individuals personally. Once again, this means the IRS will begin collection actions such as wage garnishments, bank levys and seizing of cars/properties.
Many taxpayers don’t believe that the IRS would take such drastic measures but with our inside knowledge of the IRS, we have seen many agents who have been overly zealous and even ruthless in their methods of collections for payroll tax problems. The reason some of the IRS agents are like this is because they feel that the taxpayer has stolen money from the government and their employees. At JG Tax Group we vigorously defend our clients before the IRS so these overly aggressive collection actions do not happen.
Call today to successfully resolve your payroll issues / 940’s/ 941’s.
June 4, 2010
Internal Revenue Service
Attn: James ******
1400 N. Providence Road
Re: Joseph C******
and T** Inc.
Tax Return Form Number: 941
Proposed Assessment of Trust Fund Recovery Penalty For Periods Ending:
September 30, 2008, March 31, 2009, and June 30, 2009
Dear James ******,
12 Victoria Lane
Taxpayer is a calendar year-end taxpayer. Taxpayer filed his federal income tax return on Form 1040.
communications: In accordance with section 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, Taxpayer requests to be present at all communications between the Internal Revenue Service Examination Division and the Appeals Division with respect to this matter. Taxpayer requests advance notice of such communications so that Taxpayer can arrange to be present. In addition, Taxpayer requests to be present at all communications between Chief Counsel Representatives, and the Appeals Division with respect to this matter. Taxpayer requests advance notice of such communications so that Taxpayer can arrange to be present. Taxpayer further requests copies of all written communications and summaries of any oral communications between the Internal Revenue Service Examination Division and the Appeals Division with respect to this matter. Finally, Taxpayer requests copies of all communications, whether written or written summaries of oral communications, between the Examination Division and any third party that occurred during the course of the examination of Taxpayer.
6. Taxpayer does not agree with, and hereby protests, the proposed assessments of the Trust Fund Recovery Penalty for unpaid employment taxes from T**, Inc. for the following Form 941 tax periods: September 30, 2008, March 31, 2009, and June 30, 2009 as described in the 60 Day Letter including those set forth below:
Adjustments to Income/Expenses
Joseph C****** should be given the opportunity to present information that will show that he should not be assessed the Trust Fund Recovery Penalty for the unpaid employment taxes from T**, Inc.
Issue 1: Proposed Assessment of Trust Fund Recovery Penalty
Is Joseph C****** responsible for the Trust Fund Recovery Penalty for unpaid employment taxes from T**, Inc.?
T**, Inc. files is an 1120S corporation and is owned by the following individuals:
Name of Shareholder Position with T**, Inc. Percentage of stock ownership
– Barbara F****** Executive VP 30%
– Joseph C****** President 30%
– Thomas R****** CEO 40%
T**, Inc. has operates out of the following two offices:
Location of Office Approximate number of employees
– Broomall, ** 89
– Cedar Knolls, ** 74
The Broomall, ** office is the mailing address for T**, Inc. and is considered the company’s headquarters.
Thomas R****** and Barbara F****** work in the Broomall, ** office and that Joseph C****** works in the Cedar Knolls, ** office.
The distance from Joseph C******’s residence to each of T**, Inc.’s offices is as follows:
– Residence to Broomall, ** – 88.86 miles
– Residence to Cedar Knolls, ** – 3.19 miles
While Joseph C****** would easily commute to the Cedar Knolls, ** office, he would not go to the Broomall, ** office because it would take about 2 hours of driving time to get there from his residence.
All of T** Inc.’s administrative functions, including payroll, banking and paying of creditor’s invoices, are handled out of the Broomall office. Joseph C****** was not made aware that other creditors were being paid ahead of the IRS in regards to the payroll taxes.
Joseph C****** is responsible for generating sales for T**, Inc., and does not have authority over any administrative business, including but not limited to payroll, human resources, and banking functions. In addition to not working in the Cedar Knolls, ** office, Mr. C****** did not receive nor review any company financial and/or payroll reports. Mr. C****** does not have check writing authority and consequently has not signed any checks for T**, Inc. In addition, Mr. C****** did not sign any Forms 941.
Joseph C****** does not have sole authority to determine T**, Inc.’s financial policy. There is no evidence presented that would indicate that the three shareholders met during the periods at hand to discuss and determine T** Inc.’s financial policy regarding the payment of payroll and payroll taxes.
Mr. C****** does not have the authority to pay bills from creditors or others, That responsibility is the authority of those working in the Broomall, ** office.
Mr. C****** does not have the authority to guarantee or co-sign loans, That responsibility is the authority of those working in the Broomall, ** office.
Mr. C****** does not have the authority to hire/fire employees, That responsibility is the authority of those working in the Broomall, ** office.
The failure to collect or account for and pay over trust fund taxes must be willful, 1 Courts look to the actions undertaken to determine whether the failure to collect and pay over is willful.
Willfulness has been defined as the “voluntary, conscious, and intentional decision to prefer other creditors to the United States.” 2
Paying creditors instead of paying over withholding taxes with the knowledge that the taxes are due constitutes willfulness as a matter of law. Carlson v. United States, S.D. Iowa, 2003-1 ustc §50,265. Similarly, a responsible person’s knowledge that payments are being made to other creditors after the responsible person has become aware of the employer’s failure to pay trust fund taxes is sufficient to constitute willfulness. Crutcher v. United States, N.D. Ala., 2002-1 ustc 50,289.
Neither a bad motive nor a specific intent to defraud the government is a necessary element. 3 Knowledge of the duty has been held to satisfy the willfulness requirement, as has the reckless disregard for known risks. 4 For example, where the president of the board of directors knew of the company’s history of tax payment problems and of the company’s current, steadily increasing tax liability, the taxpayer was held to have recklessly disregarded a known risk that taxes were not being paid. Jefferson v. United States, CA-7, 2008-2 ustc ¶50,587. More than mere negligence is required, 5 however, and a person is not subject to the Code Sec. 6672 penalty if the non-compliance is unintentional, Winchester v. IRS, E.D. Mich., 88-1 ustc ¶9237, 686 FSupp 605, or if, as a result of negligence, he or she is unaware of the default in the payment of withholding taxes. Calderone v. United States, CA-6, 799 F2d 254. Voluntary use of alcohol and narcotics may be incapacitating, but it is not a defense to liability. United States v. Landau, CA-2, 98-2 ustc ¶50,667, 155 F3d 93.
. United States v. Kim, CA-7, 97-1 ustc ¶50,370, 111 F3d 1351
2. United States v. McCombs, CA-2, 94-2 ustc ¶50,363, 30 F3d 310; Caterino v. United States, CA-1, 86-1 ustc ¶9452, 794 F2d 1, 6, cert. denied, 480 US 905; Powers v. United States, CA-2, 2001-1 ustc ¶50,338, 5 FedAppx 97; Rocha v. United States, D. Ore., 2001-1 ustc ¶50,425, 142 FSupp 2d 1277; Thosteson v. United States, M.D. Ala., 2001-2 ustc ¶50,653, 182 FSupp 2d 1189, aff’d, CA-11, 331 F3d 1294; Cook v. United States, FedCls, 2002-1 ustc ¶50,328, 52 FedCl 62; In re Howard, E.D. N.C., 2003-2 ustc ¶50,683, 301 BR 456.
3. Harrington v. United States, CA-1, 74-2 ustc ¶9772, 504 F2d 1306; Monday v. United States, CA-7, 70-1 ustc ¶9205, 421 F2d 1210; United States v. Beltran, S.D. Fla., 2004-2 ustc ¶50,416, 316 BR 37
4. Wright v. United States, CA-7, 87-1 ustc ¶9130, 809 F2d 425; Mazo v. United States, CA-5, 79-1 ustc ¶9284, 591 F2d 1151; Monday v. United States, CA-7, 70-1 ustc ¶9205, 421 F2d 1210; In re Fry, E.D. Mo., 91 BR 69; Phillips v. United States, CA-9, 96-1 ustc ¶50,057, 73 F3d 939; Johnson v. United States, D.C. Md., 2002-1 ustc ¶50,267, 203 FSupp 2d 416, aff’d, CA-4, 2003-1 ustc ¶50,345, 50 FedAppx 113, cert. denied, 124 SCt 60; Finley v. United States, CA-10, 97-2 ustc ¶50,613, 123 F3d 1342; Kalb v. United States, CA-2, 74-2 ustc ¶9760, 505 F2d 506, cert. denied, 421 US 979; Malloy v. United States, CA-11, 94-1 ustc ¶50,145, 17 F3d 329; Pitts v. United States, D.Ariz., 2001-1 ustc ¶50,419.
5. Kalb v. United States, CA-2, 74-2 ustc ¶9760, 505 F2d 506, cert. denied, 421 US 979; Young v. United States, N.D. Tex., 85-1 ustc ¶9247, 609 FSupp 512, 519
In U.S. District Court, So. Dist. N.Y., United States of America, Plaintiff v. Alexander Burger, Irwin Goldfeder and Alan J. Levy, Defendants [89-2 USTC ¶9452], the court noted that “For purposes of §6672, a “responsible person” includes one who either individually or as part of a group exercises ultimate authority over a corporation’s financial affairs. See, e.g., Kalb v. United States [74-2 ustc ¶9760 ], 505 F.2d 506, 511 (2d Cir. 1974), cert. denied, 421 U.S. 979 (1975); Monday v. United States [70-1 ustc ¶9205 ], 421 F.2d 1210, 1214-15 (7th Cir. 1970). A “responsible person” also includes any person who has significant control over the corporation’s affairs and participates in decisions concerning what bills should or should not be paid and when, and thus determines whether the United States or other creditors will be paid. See, e.g., Simpson v. United States [88-2 ustc ¶9474 ], 664 F.Supp. 43 (S.D.N.Y. 1987); Abramson v. United States [85-1 ustc ¶93800 ], 48 Bankr. 809 (E.D.N.Y. 1985). Ultimate authority and significant control do not mean exclusive authority or control, so that more than one person may be held responsible under §6672 . See Thibodeau v. United States [87-2 ustc ¶9620 ], 828 F.2d 1499, 1503 (11th Cir. 1987); Simpson, 664 F.Supp. at 48.”
In further support that the defendant was not a Responsible Person, the court in “Burger, et al” stated that, “In sum, the evidence may show that Levy’s status invested him with a moral duty to try to persuade those with the requisite corporate power and responsibility to direct payment of the withholding taxes. But such a moral duty is not equivalent to the duty to pay that is described by §6671 and enforced by §6672. I have been unable to find a single case in which a minority shareholder who was not an officer and was not a signatory of corporate checks, and who did not in fact perform the function of a corporate officer, was held liable as a responsible person under §6672 . Compare Thibodeau v. United States [87-2 ustc ¶9620], 828 F.2d 1499 (11th Cir. 1987) (responsible person was director and president of corporation, with check signing authority); Gephart v. United States [87-1 ustc ¶9319], 818 F.2d 469 (6th Cir. 1987) (responsible person was general manager of corporation, with check signing authority, and had authority initially to determine which creditors to pay); Howard v. United States [83-2 ustc ¶9528], 711 F.2d 729 (5th Cir. 1983) (responsible person was minority shareholder, director, treasurer, and executive vice-president, and sole or joint signatory on checking account during relevant quarters); Feist v. United States [79-2 ustc ¶9635], 607 F.2d 954 (Ct. Cl. 1979) (responsible person was sole shareholder of parent corporation, and chairman and treasurer of subsidiary); Neckles v. United States [78-2 ustc ¶9701 ], 579 F.2d 938 (5th Cir. 1978) (per curiam) (responsible person was “moving force” in organizing venture, signatory on checking account, and participant in “just about everything”); Hartman v. United States [76-2 ustc ¶9578 ], 538 F.2d 1336 (8th Cir. 1976) (responsible person was minority shareholder, president of corporation, and signatory); Harrington v. United States [74-2 ustc ¶9772 ], 504 F.2d 1306 (1st Cir. 1974) (responsible person was majority shareholder, president, and treasurer); Brown v. United States [72-2 ustc ¶9568 ], 464 F.2d 590 (5th Cir. 1972), cert. denied, 410 U.S. 908 (1973) (responsible person was president and signatory); Liddon v. United States [71-2 ustc ¶9591 ], 448 F.2d 509 (5th Cir. 1971), cert. denied, 406 U.S. 918 (1972) (responsible person was 50% shareholder, director, and signatory); Gold v. United States [81-1 ustc ¶9231 ], 506 F.Supp. 473 (E.D.N.Y.) aff’d, 671 F.2d 492 (1981) (responsible person was shareholder, director, secretary-treasurer, and signatory, who approved certain bills for payment) with Maggy v. United States [77-2 ¶9686], 560 F.2d 1372, 1374-75 (9th Cir. 1977), cert. denied, 439 U.S. 821 91978) (board chairman a signatory was not responsible because he “was kept isolated from the [Board’s financial] committee’s activities and decisions”); Bauer v. United States [76-2 ustc ¶9720], 543 F.2d 142, 149 (Ct. Cl. 1976) (substantial shareholder, vice-president, and director, who was head of corporation’s photo finishing division, not responsible because he was “an outsider” with respect to financial and fiscal affairs); Cassis v. United States, 86-2 ustc (CCH) ¶9800 (S.D. Ohio 1986) (50% shareholder, director, and officer not responsible because his duties did not require him to be involved in such matters and because his role in financial affairs in fact was “de minimis”); Abramson v. United States, 85-1 ustc (CCH) ¶9380 (E.D.N.Y. 1985) (30% shareholder, secretary-treasurer, board member, and signatory not responsible because not involved in corporation’s finances, but mainly handled sales); Bernardi v. United States, 74-1 ustc (CCH) ¶9170 (N.D. Ill.), aff’d on opinion below, [75-1 ustc ¶9133 ], 507 F.2d 682 (7th Cir. 1974), cert. denied, 422 U.S. 1042 (1975) (minority shareholder, vice-president, director, and signatory not a responsible person because he did not truly participate in decision making about disbursements or other financial matters); In re Brahm, 85-2 ustc (CCH) ¶9708 (M.D. Bankr. Fla. 1985) (president and signatory is not responsible, but mere figurehead).”
In Richard G. De Alto, Plaintiff v. The United States, Defendant , (May 13, 1998), U.S. Court of Federal Claims, (May 13, 1998) [98-1 USTC ¶50,433], the court held that, “The vice president of a corporation was not liable for the 100 percent penalty for nonpayment of payroll taxes because control of the corporation and, particularly, payment of creditors was dominated by its president. Although the vice president was aware of the corporation’s tax deficiencies, he did not have the practical authority to direct payments or to prevent them. He was authorized on bank documents to sign checks on the corporation’s behalf, but that authority was strictly limited by the corporation’s president to emergency situations occurring in the president’s absence. Moreover, his check-signing authority was exercised infrequently and, ultimately, he was terminated for payment of creditors without the president’s authorization. Thus, the vice president was not a responsible person for purposes of the trust fund recovery penalty.”
In addition, Robert White v. the United States , (Feb. 17, 1967), U.S. Court of Federal Claims, (Feb. 17, 1967), [67-1 USTC ¶9250] held that, “The president of a corporation, who had the ultimate authority to decide which creditors to pay and when, was a person under a duty to collect and pay over withheld income and FICA taxes. Penalties for failure to pay over such taxes were proper where he willfully (voluntarily, consciously, and intentionally) failed to do so.”
In U.S. District Court, East. Dist. La., Richard W. Hare v. United States of America , (Mar. 03, 1997), (Mar. 3, 1997) [97-1 USTC ¶50,293, the court found that, “A corporation’s chief financial advisor did not qualify as a responsible person liable for the trust fund recovery penalty, but its president was a responsible person. The advisor had no authority to sign or disburse checks and was not regularly involved in the payroll process. Further, his decisions with respect to creditors’ payments were subject to final approval by corporate officers. On the other hand, the president, who was a member of the board, had the power to disburse funds, pay creditors, and sign checks. In addition, the president willfully failed to pay over the withheld taxes because he made payments to other creditors after learning of the payroll tax delinquencies.”
Mr. C****** is in the same position as the above noted cases in that he is not willful, since he did not have the final word as to what checks would be prepared. Further, Mr. C****** did not possess the right to dictate corporate policy including the payment of creditors. Additionally, Mr. C****** did not voluntarily, consciously, and intentionally pay employee withholding taxes to the IRS.
Mr. C****** should not be held liable for the unpaid employment taxes from T**, Inc.
As noted above, Taxpayer reserves the right to file one or more supplements to this protest, as appropriate. We would be pleased to discuss with you a schedule for resolving this appeal promptly.
Please continue to direct all future correspondence concerning this matter to:
JG Tax Group
JG Tax Group
Tom W was part owner of a corporation that got behind on its 941 payroll taxes. The company was having cash flow problems and instead of sending the IRS the employee withholding taxes they used the money to pay other company payables thinking they could catch up when business started to pick up. Unfortunately, business did not pick up as expected and they fell further behind on the payroll taxes. By this time they owed about $90,000. They hired a company who promised to get the debt settled for pennies on the dollar and the company did nothing for them. The IRS was getting ready to levy the company’s assets and shut the company down when Tom hired us. We were able to get a 30 day hold on the IRS taking further action and got Tom to send us the company’s current financial information. We did a financial analysis which revealed that the company could afford to pay the back taxes in monthly payments and stay current on their current payroll taxes if the IRS would allow them to stay in business. The IRS agreed with our assessment and approved the plan.
“My former business partner made some poor decisions that left me with some problems. I retained a company that said all of the right things but did nothing at all. Then I found JG Tax Group. I wish I’d found you first. Everyone there is professional, and they get results. You were able to take a complex and messy situation and turn it into something I can handle with no problems!
Tom W Seattle