The Government Accounting Office (GAO) was asked to review and report on the Internal Revenue Service’s (IRS) processes and procedures to prevent and collect unpaid payroll taxes. Specifically, GAO was asked to determine (1) the magnitude of unpaid federal payroll tax debt, (2) the factors affecting IRS’s ability to enforce compliance or pursue collections, and (3) whether some businesses with unpaid payroll taxes are engaged in abusive or potentially criminal activities with regard to the federal tax system.Over 1.6 million businesses owed over $58 billion in unpaid federal payroll taxes, including interest and penalties as of September 30, 2007. Payroll taxes consist of your income tax withheld, social security and Medicare contributions, and the employer’s contributions.
Some of these businesses “abuse” the federal tax system and took advantage of the existing tax enforcement and administration system to avoid fulfilling or paying federal tax obligations. Over a quarter of payroll taxes are owed by businesses with more than 3 years (12 tax quarters) of unpaid payroll taxes. Some of these business owners repeatedly accumulated tax debt from multiple businesses. For example, the IRS found 18 individuals were responsible for not remitting payroll taxes for a dozen different businesses and over 1,500 individuals to be responsible for nonpayment of payroll taxes at three or more businesses.
IRS has not always promptly filed liens against businesses to protect the government’s interests and has not always taken timely action to hold responsible parties personally liable for unpaid payroll taxes.
Although IRS has tools at its disposal to prevent the further accumulation of unpaid payroll taxes and to collect the taxes that are owed, IRS’s current approach does not provide for their full, effective use. IRS’s overall approach to collection focuses primarily on gaining voluntary compliance – even for egregious payroll tax offenders – a practice that can result in minimal or no actual collections for these offenders.
If your business has payroll tax problems you are at risk of the IRS putting you out of business, and assessing the trust fund recovery penalty resulting in owners, and officers having substantial personal tax liability. If you would like assistance in dealing with these, and other types of tax problems contact Los Angeles tax attorney Mitchell A. Port at 310.559.5259.