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If your business has employees you are required to pay payroll taxes. Depending upon the size of your payroll, you may be required to make payroll tax deposits with the IRS on a quarterly or monthly basis, or as soon as the day after the day you pay your employees. If you fail to pay your payroll taxes on time then the taxing authority imposes interest and penalties for late payment. If you let things go too long, the penalties and interest can be greater than the payroll taxes themselves.

There are several ways that payroll tax problems can arise. Sometimes a business is short of cash. If the employer doesn’t pay its employees, suppliers and landlord, it will be out of business. Most taxing authorities move much more slowly. It can be months or even years before the IRS or Employment Development Department gets serious about collecting the payroll taxes. Some employers hope that by the time the taxing authority catches up with it, it will have enough money to pay the past due taxes, interest and penalties. Unfortunately, because of the laws of compounding, this usually does not happen. By the time the taxing authority shows up, things have gotten so bad that the taxing authority is threatening to shut down the business. In some circumstances, the failure to pay payroll taxes can be a felony subject to criminal prosecution.

Another way the payroll tax problems arise is when incompetent or dishonest employees fail to pay the payroll tax debts and hide that fact from the business owner. Your business cannot avoid paying the payroll taxes even if you can prove the taxes were not paid because of incompetence or embezzlement. However, we may be able to negotiate a settlement with the taxing authorities to reduce the penalties and interest. We may also be able to prevent the taxing authority from holding you personally responsible for the payroll tax debts. Most businesses that have IRS payroll tax problems also have California payroll tax problems. The rules governing the California and IRS payroll tax requirements are similar, but there are many important differences.

There are many strategies to resolve payroll tax problems. These include obtaining a short term deferral of the payroll tax payments, making an offer in compromise, negotiating an installment payment program, filing a claim for abatement of penalties and interest, and having your payroll tax debt declared currently uncollectible. Having the business enter bankruptcy in order to discharge payroll taxes is problematic, as the IRS can still pursue collection of the tax debt from personal assets of the business owners and officers. Call our office at 951-787-7711 to schedule your free consultation to discuss your situation.

Payroll Tax Audits and Use of Independent Contractors

The use of independent contractors often results in an investigation by the IRS or the Employment Development Department. The taxing authority can conduct a payroll tax audit and it may decide that the independent contractors are in fact employees and not independent contractors. How does a taxing authority determine whether a worker is an employee or an independent contractor? Generally, the IRS looks at test consisting of twenty factors. The twenty factor test is complicated, but we can you gather the evidence needed to show the taxing authority that your workers are independent contractors and not employees. If the taxing authority does not agree, our tax controversy attorneys can appeal your case or represent you in court.

Congress has passed a law that is sometimes referred to as safe harbor relief. We can help determine if you qualify for safe harbor relief. If you do, we can handle your tax dispute.

If you don’t qualify for safe harbor relief, the IRS has a special settlement program that allows their agents to settle cases for less than the full amount due even if your business has money to pay in full. This program is known as the Classification Settlement Program, and is available to businesses who meet some, but not all of the tests to qualify for safe harbor relief. During your payroll tax audit, or even during the appeal of your payroll tax audit, we can negotiate with the IRS on your behalf to reduce your payroll tax debt through the IRS Classification Settlement Program. We can also assist you dealing with the Employment Development Department regarding independent contractor issues.

Call us at 951-787-7711 to schedule a free phone conference or in-office appointment to evaluate your payroll tax problems.