Accounting Articles > Non-Filers:

Federal payroll taxes

So you've withheld payroll taxes on your employees and, for whatever reason, haven't sent in any taxes returns, let alone paid the taxes, and you want to stay in business. What do you do now?

You've probably seen the ridiculous advertisements on television about resolving $50,000 in payroll tax liability for five cents on the dollar, or whatever. Beware! Be afraid of anyone promising you something which is too good to be true. Many of the people in this business will charge you plenty of money, make lots of promises, and do little or nothing in return.

Please think about this from the standpoint of the Internal Revenue Service. Why should they give you a break? If you're still in business, it would be discriminatory for them to give your business any breaks they haven't also given to all of the other businesses that have paid their taxes properly.

There are many exceptions to the rule. Short of filing a double bankruptcy (Personal and Business) though, there are two conservative choices. You can either pay the taxes all at once, or come up with a payment plan. Sorry. I'm sure that this isn't what you wanted to hear. But this is the unvarnished truth. The IRS is forever. If you can't pay them now, they'll wait. So the sooner you deal with the problem, the less it will cost you in interest and penalty.

There is a process called Offer and Compromise. I hesitate to mention it because it is not a feasible option for most of those who want to stay in business. Once again, if you stay in business The Service cannot give you a break because it would be discriminatory against the other taxpayers for them to do so. But if you are no longer in business, and are completely incapable of paying what you owe, the Offer and Compromise may be a reasonable alternative.

If you owe an amount which you cannot pay, then you can offer an amount which you can afford, and The Service may compromise. It's not that simple, as a matter of fact, it is quite complicated. Generally, the process takes a couple of years, but if you don't have any assets and can barely afford a lower class lifestyle for yourself and your family, this may be an option for you.

Realize that if you owe back payroll taxes, you are in a position where there is usually little or no defense. You were the custodian of the government's money. You withheld this money from the paychecks of your employees and, instead of paying it to the government, used it or stole it for other means. They don't look very kindly on such things. Payroll tax is especially sensitive in this regard, because most of it wasn't your money in the first place.