Legal Question in Tax Law in Massachusetts

Owe IRS employment taxes

I own a small business that started in January of 05. All year the business has been just barely scraping by. Originally for the first three months or so the payroll taxes did not get paid because we had a payroll service that we thought was paying them. When it became clear that these taxes were not being payed, we planned to just start paying ourselves. But business was so bad that if we had payed those taxes, we would have been out of business.

We have now recieved a letter from the IRS saying they have no files about our employees for the first 3 quarters, and would like us to send in a letter stating how much we owe them so they can calculate our fines.

What do we do? We are still just barely scraping buy, and mostly this was a problem of ignorance. Things are improving, and we should be in the green at the end of the holidays. We have considered working the paperwork to look like all of the employee hours were during this last quarter and just start paying now. That way at the end of the year when our past employees submit their returns, all the amounts will add up. But we realize we could run into problems if we are audited and they look at the actual checks we wrote all year. Any suggestions?


Asked on 10/18/05, 11:49 pm

1 Answer from Attorneys
Lawrence Graves Coolidge & Graves PLLC

Re: Owe IRS employment taxes

You've got yourself a serious mess. You see, there is a fundamental difference between income taxes and payroll taxes: income tax is simply a debt to the government of part of your money; payroll tax is money that belongs to your employees that your company holds in trust until paid to the IRS. Thus, the IRS views non-remittance of payroll taxes as a form of theft, and they are quite unsympathetic about any excuses. If you contact them and work out a payment plan, they will drop on you like a ton of bricks for missing a payment -- they really don't care about the survival of your business if they can recoup the money that was misappropriated from the employees....

Better get a CPA involved ASAP (you shouldn't need a tax lawyer at this point, unless your CPA tells you otherwise).

Best wishes,

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LDWG

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Answered on 10/19/05, 9:42 am


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