The Danger of Tax Cutting Corners to Help Your Family

Jeff Hanlon (not his real name — we respect the privacy of our clients) is a nice guy who owns a chain of dry cleaners. A few years ago his daughter had been accepted to a top college, and Jeff needed cash to cover the tuition costs. We all know how expensive a higher education is these days. But credit was tight, and Jeff had just expanded his business.

To make up the difference, Jeff did what everyone knows you are not supposed to do: he cut an easy corner and dipped his hand into the payroll account trust fund that was set aside to pay the IRS. The Trust Fund is comprised of the money an employer withholds from the paychecks of their employees, including Social Security, Medicare, FICA and Federal Income Tax. It was only a short-term loan, Jeff reasoned, and he would pay it back next month.

What Jeff had forgotten is that bad luck can strike an individual and his family at any time. The very next month his wife was injured in a serious car accident, and her health insurance had lapsed. You can imagine the rest of the story. Jeff was not able to pay back the money he had taken from the Trust Fund to cover the tuition expenses. When tax time came around, Jeff still did not have the necessary funds, and he found himself in big trouble.

At first, Jeff considered bankruptcy as a viable way out, but quickly found out that payroll tax debts involving Trust Funds are not dischargeable in bankruptcy, or under any other circumstances for that matter. Jeff found himself under the gun, and the IRS was not about to look the other way. When it comes to Trust Fund manipulation, the IRS takes the offense very seriously and would go after everything: Not just the business, but Jeff’s personal assets as well.

Every hour on the hour, the IRS selects 100 taxpayers for audits. 95 of them are simple procedures since their audits are generally routine compliance audits. But then there’s that 5 in 100: the Jeff’s of the world who find themselves in deep water with their financial security and their future in grave danger. The IRS selected Jeff because business owners like him have failed to properly report and pay their payroll taxes. The IRS immediately knew that he could not possibly make good on the money that he owe in back payroll taxes. With the Tax Fund Recovery Penalty in place at 100%, Revenue Officers go right for the throat.

Other tax professionals became frustrated when they tried to help Jeff because the IRS would not budge. They even proposed a structuring plan that made generous allowances for the employer portion of the taxes owed. It fell on deaf ears…they had him dead to rights and they knew it.

Jeff’s accountant said, “I’m sorry, Jeff, there’s nothing I can do at this point.” The look on Jeff’s face was one of utter despair. He was terrified he would lose his business and have to tell his daughter he couldn’t afford the college she had worked so hard to get into. With nowhere else to turn, Jeff’s accountant recommended that Jeff contact Peter Stephan and the Tax Experts at the Tax Resolution Institute.

Employing his expertise and experience with unpaid payroll taxes, Peter Stephan able to convince the IRS to settle with Jeff for $1,085. Although he owed $500,000 to the government, Peter Stephan knew the right actions to take in order to save Jeff’s business and allow his daughter to attend the college of her dreams. Luckily, Jeff’s wife recovered from the accident, his business is thriving, and his daughter graduated with honors. With Peter Stephan and the Tax Resolution Institute by his side, Jeff found freedom from the nightmare of his tax crisis.