In tough economic times, hard-working entrepreneurs protect their business by first paying the vendors, suppliers and employees that are necessary to operations, and delaying payment to the IRS. This is because the vendors and employees are at the door, waiting for payment, and there can be no tomorrow without them. The IRS is more distant. The plan is to catch up later with the government.
This year, I have seen the IRS take significant steps to get more aggressive on employment taxes. Revenue Officers are appearing at my clients’ place of business earlier than ever, after only a quarter or two of employment tax delinquencies. Many of the cases in involve balances due – $15,000 and under – that are relatively small compared to other accounts the IRS is carrying and would usually be more focused on. The message I am getting is clear: The IRS is seeking to stop employment tax problems earlier than in the past, and it is a priority.
Final Notices of Intent to Levy, which must be issued by the IRS before assets can be garnished or seized, are being issued upfront, immediately, and upon first contact in employment tax cases. In the past, Revenue Officers would often use some discretion to see if the case could be solved before turning to possible enforced collection measures. This aggression is forcing quick appeals of the Final Notice of Intent to Levy. The appeal stops IRS collection action and puts negotiations in the hands of an Appeals Officer, without risk of IRS collection action.
Employment taxes pose a significant threat not only to the business, but to owners and management. Even if the business is incorporated, the owners and key employees who control financial decision making will be pursued individually by the IRS for the part of the unpaid employment taxes. This is called a trust fund recovery penalty, and puts the personal assets of management into play for collection of the unpaid taxes.
The new IRS approach is actually somewhat of a benefit to business owners. The early wake-up call makes recovery for the business more possible as the employment tax liability is not yet at the point of no return. And it minimizes the extent of personal liability of management. I have seen employment tax cases go out of control to where the business cannot recover from it, must close, and management is saddled with the trust fund penalty.
The IRS is forcing a harsh reality, but it is a good reality nonetheless. But great care needs to be taken in defending the aggression of the IRS in these cases against the business and its management.