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Mature male tax auditor examining documents with magnifying glass at table in office
The IRS gives people a lot of leverage if a person is not paying or filing their own income taxes. Historically, they are slow in identifying it and even slow in reacting to it.

However, when it comes to payroll taxes, the IRS is not so cool with it. They’ll be agile in getting all over the business and the people who might be responsible. They will put locks on the business gates and seize the assets rather than letting you avoid payroll taxes again.

Being indebted to the IRS isn’t like not paying a credit card bill or skipping a bank loan installment, the IRS has a lot of powers granted to them by the United States Federal Government. They can pull money out of your bank account. They can similarly get into your social security benefits, 401(k)’s, real estate, private property, your life insurance policy’s loan value, accounts receivable and commissions owed to you. All of this just to settle a tax debt. And if they find out that you did it all on purpose, they can put you in jail.

So that makes it clear – there is a big difference in not paying/filing personal taxes compared to not paying/filing/depositing payroll taxes.

What can the IRS do?

If you fail to pay your payroll taxes, the IRS can close down your business without any prior permission from the court. And, as they hold multiple stakeholders personally responsible for the non-payment of payroll taxes, they might even seize personal assets that don’t even belong to the company. Payroll taxes aren’t even waived in the case of bankruptcy. And, in the worst case scenarios, if it is proven that you willingly avoided and evaded payroll taxes, it can easily land you in jail.

Are you responsible?

As someone who could potentially face such charges, one should know whether they’d be considered ‘responsible’ by the IRS. If you sign paychecks, then there is a good chance that you’re on the list of subjects. In order to give a clearer picture, the IRS has a test that comes from two different approaches to determine your status of respondents.

1. Whether the party against whom the Trust Fund Recovery Penalty is proposed had the duty to account for, collect, and pay over payroll taxes

2. Whether he or she willfully failed to perform this duty

This doesn’t sound very comprehensive and, indeed, this is the case for a reason. The IRS has made it pretty easy for themselves to label someone as responsible and sometimes even employees who have little to do with the payroll are subject to IRS prosecution.

Why does the IRS take this Issue so Seriously?

This question pops into the minds of many people and the answer is because the payroll taxes are not actually your business’ taxes. They are the taxes owed by the employee to the federal government. So, when you’re taking these taxes from your employee’s salary and failing to forward them to the federal government, it is considered theft from the viewpoint of the IRS.

Looking at it ethically, not forwarding the payroll tax is something that deters the FICA and it equates to taking money that doesn’t belong to you.

Why does the IRS want to close you down?

This answer is simple.  If you avoid paying payroll taxes, the IRS does not trust your business. They are only trying their best to eliminate the possibility of the payroll tax problem getting bigger. So, when the IRS eyes your business for a payroll audit and they find it to be incorrect, they already want to close you down. It is quicker for them to do so if they get the owed tax money by liquidating your assets rather than getting money from the responsible parties.

Additionally, if the IRS Revenue Officer were to agree to a payment plan and the debt gets worse, its an even more embarrassing situation for the Revenue Officer, since they were “duped” into agreeing to a plan. Again, it’s easier for them to just shut the business down.

In order to avoid all of this, it is recommended that you get the services of a certified Tax professional or attorney. And, most importantly, pay those payroll taxes.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Business women using magnifying to review financial summary report. Concept of Internal audit, Auditing tax,  Analyze return on investment.

What You Should Know about Business Tax Audits Conducted by the IRS

1. Most of these audits are conducted in person by the IRS.

2.
These audits are very comprehensive and cover issues such as income tax, employment tax, and payroll tax. Proper preparation is crucial for the audit.

3.
The determination of the IRS agent is not final. You have the right to appeal against their determination.

The audit of your business tax return is conducted in order to verify the authenticity of the information that you have filed. Questions such as whether you included all of your income and filed only for deductions that are permitted by the law are looking into. These audits aren’t conducted at random. Returns likely to have some errors in them are selected by the IRS through a set intricate criteria. The audits begin within a year of filling and are completed mostly within that year.

The Returns of Audits are Conducted in 3 Ways

1. By mail: This type of audit is known as a correspondence audit.

2. At an IRS Office: This type of audit is known as a desk or office audit.

3. In person: This audit is conducted at the site of your business or your home and is known as a field audit.

As mentioned above, the majority of business audits are conducted in person, i.e. they are mostly field audits. Field auditing is an extensive task and considered a physical inspection of all aspects regarding owners and their businesses. The IRS takes a close look at the accounting system and business records while physical inspections are carried out to deem the authenticity of those records. It can take up to a year for a business audit to be completed (in most cases). However, the audit time can be reduced if a business properly prepares for the audit with prompt responses to the requests and questions raised by the audit team.  

While the audit is being conducted, the IRS requires you to submit all necessary documents (such as bookkeeping records) that are used to determine your financial position. You should be accurate and precise when providing the information requested by the IRS. It is recommended to have a licensed tax professional to handle your audit-related tasks. You will need to provide your tax professional with the facts needed to handle the audit.

Understanding the Scope of an Audit

The scope varies according to the type of audit being conducted. Here’s what you should keep in mind:

  • Mail Audits are very limited. They include a check on a few items, which are mentioned in the audit letter that the IRS mails you.
  • Office Audits go into more detail. They are generally less complex than field audits but, in certain situations, they may have a scope similar to that of a field audit.
  • Field Audits are the most time consuming. They include questions that probe into the activities of your business and your business’ financial position. It is a wise decision to hire the services of a tax professional to represent your business in front of the IRS.

Preparing Responses to Questions Asked by the IRS

Mail Audit: Preparing for a mail audit is a relatively easy task. You will only have to prepare complete responses to the questions included in the audit letter you received via mail.

Field and Office Audits: These can be more complex. In this, you will need to:
  1. Prepare for the meeting session you will have with the IRS agent/officer who will be conducting the audit
  2. Prepare and compile the information that has already been requested by the IRS
  3. Prepare for any sort of questions that the IRS and the IRS Agent/Officer might ask

In simpler words, you must be prepared to answer any sort of question related to your financial activity that has happened during the year for which you are being audited. You will also need to recreate documentation for anything that isn’t documented (or if relevant documents have been misplaced). Third party records or other records must be used for reconstructing such documents.

Respond to any request for documents/information promptly and on time

  • The IRS will increase the number of questions if they think it is necessary for you to change your returns. If you get an IDR (Information Document Requests) which asks for more information about finances, it is important to respond by the deadline in order to avoid any sort of suspicion on the IRS’ side.
  • The IRS may tell you that items such as income and deductions have been misreported. If you disagree with their conclusion, you must represent your interpretation to the IRS.
  • Finally, the audit is closed with the IRS either recommending some adjustments to your returns or accepting your returns as they are. You would, however, be given a 30-day window to appeal their decision.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.




 

tax form with calculator, money and pen
It is never a brilliant idea to owe taxes to the government and, even worse, if you don’t have the resources to pay your tax bill. The first plan of action in such a situation should be to look for payment plans and file the tax returns before the deadline to avoid the 5% penalty each month on the available balance. There will be an additional interest on it as well which is adjusted after every 4 months, depending on their preference. At this point, your aim must be to minimize the damage and the only way to do that is finding an opposite plan that will put you out of tax misery.

To discuss payment plans with the IRS, you can call them at 1-800-829-1040 and they will help you out to the best of their ability. Apart from that, you have plenty of other options to reduce your tax bill through hiring professional consulting services and by following the advice below.

Pay as Much as You Can

Even though you may not be able to pay the whole amount at one time, it is important to pay as much as you can in the first installment. This will significantly reduce the interest and penalty because of the lower remaining balance. Also, there is a possibility that the IRS may offer better payment plans to individuals having less than a certain amount in the remaining balance.

Request an Extension of the Tax Bill

Requesting a payment extension is one of your options if you are unable to pay the tax in due time. Typically, you would get a period of 120 days to pay the tax returns after submitting the forms. The IRS would ask you in case you want to request a payment extension. Those individuals who have not previously applied for extensions are eligible to avail this facility.

Installment Payment Plans

It is advised by experts that installments are a viable payment plan if you owe less than $50,000 and need more than the allotted 120 days to pay off the tax bill. An online payment agreement form needs to be submitted which will set you up for an installment plan of as much as six years. A one-time setup fee will be charged which depends on the amount you owe and is usually $30 – $250. For individuals who can set up direct payment plans from their bank accounts, the fee can be significantly reduced further.

Another benefit associated with opting for an installment plan is related to the reduction of penalty charges for failing to pay the installment. You will be charged an interest of .33% for failing to pay the installment on your tax bill, rather than paying .5% for a general plan. However, only one time filers get this privilege.

Apply for Leniency Payment Plans due to Adversity

To ask for a leniency payment plan from the IRS, you will need to authenticate that making this payment would leave you in dire circumstances. You may even lose your home and may have to offer other financial sacrifices because of the ongoing crisis. If the IRS approves a leniency plan for your tax bill, that would be the best scenario for you. You will be given more time to make the payment and any kind of penalty is also waived. There is an “Application for Extension of Time for Payment of Tax due to Undue Hardship” that needs to be filed and submitted to become eligible. There is a thorough investigation into your claims before you are offered the remunerations, so ensure that the leniency payment plans are only sought for in case of eligibility.

Personal Loan

A personal loan can be your best bet against the IRS considering a family or friend may be willing to help. There are some people in your life who trust you and you trust them equally in return. You would not have to worry about interest payments in such an agreement. However, it is still recommended to at least notarize the deal and discuss a payment plan, just to avoid any inconvenience for both parties. While it may not be one of the most suitable payment plans for most people, it certainly can offer some relief from tax bill.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

 

 

 

 

Internal Revenue Service sign with a traffic signal in the foreground indicating a red light.
There are advertisements all over media which make claims about the settlement of tax debts that taxpayers need to pay to the IRS. The particular settlement program is known as Offer In Compromise. However, the fact that a vast majority of Offer in Compromise applications are rejected is something you should be aware of. 

In a report made by the Government Accountability Office, there were 16 million people with tax debts as of 2010. During that time, only 31,000 Offer in Compromise applications were approved, while approved Installment Agreements numbered to 4 million.

The acceptance rate for Offer in Compromise is low because of two main reasons.

  1. There are a lot of taxpayers who apply, but do not fulfill the base qualifications for Offer In Compromise.
  2. The taxpayers who do qualify are unable to pay the amount they offer.

Do you Qualify for Offer in Compromise?

The basic criteria that is used by the IRS to determine the acceptance of an application for Offer in Compromise is the ability of the taxpayer to pay their tax debt. There is a tool on the IRS website known as the OIC Pre-Qualifier that can help you get a basic idea of your acceptance eligibility.

The basic idea to qualify for an OIC is for a client to prove their inability to pay the total tax debt before the expiration of the collection statute. This is done by viewing the net equity of assets along with any kind of future income. Monthly disposable income is basically what the IRS uses to calculate future income to determine whether a tax debt can be paid before the expiration of the collection statute.

If the final calculation determines the inability to pay your tax debt, you are considered eligible for Offer in Compromise.

You should know that eligibility does not equal acceptance. You must be able to pay the offer amount computed by the IRS in order for your application of Offer in Compromise to be accepted and the debt to be settled.

Can you Pay the Offer in Compromise Amount?

There is a formula used to objectively determine whether you can pay the amount proposed in the Offer In Compromise. The formula requires an estimate of your future income for 1-2 years.

Due diligence is necessary for calculations of the offer amount. Sometimes, people who have a tax debt overestimate or underestimate this amount in their calculations. They need to properly calculate their disposable income for each month and the net equity in the assets they own. Due diligence is also important in order to avoid what may become a lengthy and costly investigation process.

2011 Fresh Start Initiative by the IRS

The number of qualifications and acceptance of Offer In Compromise has been rising since 2011. The reason being the Fresh Start Initiative which has made it easier to qualify for Offer in Compromise. The 2011 initiative also enabled the people who owe taxes to pay a lesser offer amount.

Before the introduction of the initiative, offer amounts for tax debt settlement were considerably higher than they are today. Before the initiative, future income would be summed up for 4 years instead of the 1-2 years that is now calculated since the Fresh Start Initiative.

There was a 30% increase in applications for Offer in Compromise after the introduction of Fresh Start, while the IRS’ acceptance rate has increased from 25% to 42%.

Conclusion

The Offer in Compromise should only be considered when your financial situation is poor enough to hinder your ability to pay the complete tax debt until the expiration of collection statute. The criteria for qualification and acceptance of an Offer in Compromise application is quite clear in order to decide between pursuing an Offer in Compromise or not.

The difficult task is the calculations and estimations involved in computing the ability to pay and the net equity in assets. You should look closely into the feasibility of the Offer in Compromise in regards to your financial situation. Sometimes, there are suitable alternatives to Offer in Compromise such as a Partial Pay Installment Agreement or a Currently Non Collectible Status.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

tax form with callculator and glasses
The IRS issued regulations, both temporary and final, on the 18th of July 2017, updating the due dates and rules that define extensions (such as the time to file tax returns). The regulations apply on returns that are filed on and beyond the 20th of July 2017. Much of the statutory changes were in effect from the 31st of December 2017. Such changes supersede the final regulations.

In 2015, Congress passed many bills that incurred statutory changes and those changes are summarized within these final regulations. The bills did contain provisions affecting certain things that aren’t related to or affected by the main bill. The two bills that did so were “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” and “Protecting the Americans from Tax Hikes Act of 2015”.

If there is a case when a filing due date (for regular taxes) falls on a non-business day (such as a Sunday, Saturday or a Public Holiday) the due date is postponed to the next business day. 2016 saw an adjustment in many of the due dates for filing because of this rule. These dates include:

  1. Individual and FBAR Due Date
  2. Form 1041 Due Date
  3. Partnership Extended Due Date
  4. Form 1041 Extended Due Date
  5. C Corporation Due Date

Tax Returns for 2017 that are to be Reported in 2018

W-2 Forms, submitted either electronically or by mail, are due by January 31st.

Partnership businesses are supposed to fill out Form 1065 and S Corporations are supposed to submit Form 1120S. Both of these are due on the 15th of March. The deadlines for these can be extended up until September 17th.

Trusts and estates must submit Form 1041. And, Form 1120, which has to be submitted by C Corporations, must be submitted by the 17th of April. These can be extended up until the 1st of October and the 15th of October, respectively.

Tax exempt organizations are due to submit the Form 990 Series by the 15th of May. The extended due date for this form is the 15th of November.

The Form 5500 Series, which is supposed to be submitted for the Employee Benefit Plan, is due on the 31st of July, with the extended due date being November 15th.

For the corporations and businesses that file according to Fiscal Years, the following is accurate.

 Filer Type

Due Date (Counted after End of Fiscal or Plan Year)

S Corporations and Partnerships

The Fifteenth Day Of the Third Month

C Corporations

The Fifteenth Day of the Fourth Month

Employee Benefit Plan

Last Day Of The Seven Month

It is important to check the due dates for tax returns in the states that are relevant to you because, sometimes, the due date set by individual states may differ from the federal due dates for filing.

Changes That You Should Be Aware Of

1. Form 1065 Filers (Partnerships) are getting a longer extension period, which can be up to 6 months. Previously, they were able to have a 5 month extension.

2. Form 1041 Filers (Trusts and Estates) have a maximum extension of 5 ½ months, granting them a two week longer limit of extensions compared to the limit for previous rules.

3. The Report regarding Employee Benefit Plans will be getting an automatic extension to a maximum of 3 ½ months.

4. Reporting of Data on Financial and Foreign Bank Accounts will have the same due date as Individual Form 1040, with an extension of up to 6 months. The convenience provided by this change is the alignment of the Individual and FBAR filing. Moreover, the penalty for failure to file a request for an extension in time can be waived by the IRS.

5. The automatic extension for those who are filing the 990 Series (i.e. Tax Exempt Organizations) will be getting a longer extension, which will be 6 months rather than the former 3 month automatic extension.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.