As the Northern California economy slowly comes back from the recent downturn and business starts picking up, it is essential that business owners in Northern California are aware of five essential points in regards to the IRS and payroll taxes. Since San Francisco, San Jose and Silicon Valley have traditionally been the high tech business centers of Northern California, they were hit the hardest by the recession. If a business cut corners when it came to paying their payroll taxes in the form of the trust fund, there are five points that are essential to know. Since the Revenue Officers at the IRS is increasing their focus on payroll tax compliance, knowing this key information could help your business avoid an audit or, even worse, a federal criminal investigation.
1) Due to the 100% Trust Fund Recovery Penalty, Payroll Tax penalties Increase at a rapid rate. Beyond the 100% Trust Fund Recovery Penalty which can bankrupt a business on its own, the IRS also apply three additional penalties — failure to file, failure to deposit, and the failure to pay. Even if you plan to pay but are just two weeks behind, these penalties will kick into action, adding up to over 33% of your original bill.
Unpaid Payroll Taxes Threaten Business Owners
2) The failure to file and the failure to pay your Payroll taxes can be classified as federal crimes. If the IRS believe you intentionally avoided your payroll tax responsibility as a business owner, consciously used the Trust Fund to cover your own bills and deems it necessary, both the Criminal Investigations Unit and the Department of Justice can be called on and the case taken to the next jurisdictional level.
3) Small to mid-sized businesses are the most likely targets of Payroll tax audits by IRS Revenue Officers. Why is this the case? Simply because it has been proven that small to mid-sized businesses are the biggest sources of uncollected payroll taxes. Even mid-sized businesses are in better shape than the small business owner. With a small business with limited resources, the IRS is more likely to be able to resolve and close the case. As the largest collection agency in the world, the heart of their business is to close cases.
Silicon Valley Hit Hard By The Recession
4) The IRS can come after a business owner individually for outstanding payroll tax debts. Once again, this is another reason why small businesses are targeted. If you own a small high tech company that was hit hard by the recession and you are a start-up, you are considered a prime candidate by the IRS for a payroll tax audit. As a result, the Tax Resolution Institute understands how many companies in Silicon Valley, San Jose and San Francisco could be facing serious payroll tax problems in this tough economy.
5) Let’s be clear and simple on this point — No matter what the situation, no matter what the circumstances, borrowing from payroll taxes, using the trust fund to cover any external costs whatsoever, is against the law. The money collected from employees to pay their share of federal withheld tax, FICA and Medicare (Social Security) does not belong to the business and must be accounted for and paid to the government. You are not borrowing from your company; rather you are seen as someone who is stealing from the federal government. Owing back payroll taxes is serious business. This is why the trust fund recovery penalty is a 100% penalty.
The Tax Resolution Institute understands how hard many small to mid-sized companies in Northern California were hit by the recent recession. If your company made the mistake of using the Trust Fund to cover your debts and failed to properly cover your payroll tax debts to the IRS, please contact us right away. We have worked with companies in San Jose, San Francisco and Silicon Valley, and we know how to find real tax resolution for a payroll tax crisis.
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