Many practitioners who counsel business clients, both small and large, are familiar with the difficult challenges that quickly arise when payroll taxes are withheld from employee wages but not turned over to the federal government.

On occasion, these taxes are not paid due to the misdeeds of an in-house bookkeeper or a third-party payroll service responsible for ensuring that a business meets its tax obligations. More often than not, however, employers, acting without bad intentions, use the withheld money to satisfy pressing trade obligations or to meet payroll, debts the nonpayment of which is likely to lead to the shutdown of the business and loss of employee jobs. Unfortunately, this strategy can prove extremely costly to both the business and its principals, generating exposure to substantial penalties for late payment or failure to pay at all.

Making the stakes even higher, the federal government has in recent years taken steps to increase the likelihood that employment tax cases will be handled criminally. All of this means that tax advisers working with business clients cannot focus solely on strategies to minimize and pay the business’s income tax obligations but also must be extremely vigilant regarding employment tax duties.

Recently, the DOJ has increasingly emphasized criminal prosecution of those who fail to comply with their obligations to withhold, account for, and pay over federal employment taxes.

The role tax professionals play in detecting and addressing nonpayment early is becoming increasingly important. Fewer collection actions make it even more important for tax professionals to discover and address delinquent employment tax issues early. A tax professional detecting the nonpayment early and assisting the client in developing a feasible plan to pay the tax owed offers an important service. Moreover, to minimize the personal financial exposure of persons potentially responsible under Sec. 6672, a practitioner should be certain to designate any voluntary payments toward the trust fund portion of the delinquency. Again, the quicker the trust fund portion is paid, the less likely the need for a trust fund recovery penalty investigation and the less likely there is to be a subsequent, or concurrent, criminal investigation.

We are happy to counsel our business clients with payroll taxes, as to the most efficient way to handle this obligation. Paying employees accurately and timely supports your staffing efforts, paying your taxes accurately and timely, keeps the tax agencies away, and avoids costly fees. Contact us today if you have questions or concerns about your businesses payroll process.

For a detailed discussion of the issues in this area, see “Employment Tax Penalties: Let’s Keep It Civil,”
in the February 2018 issue of The Tax Adviser.