We Help With Payroll Tax Disputes

You probably found us by searching for “payroll tax attorney” or “941 tax attorney.” We are glad you found us. We are tax lawyers in Houston, Texas and we help with IRS payroll tax disputes.

Business owners often find themselves ensnared in payroll tax controversies. This includes Form 941, Form 944, Form 945, and Form 940 problems, whether you are a quarterly or semiweekly filer or you have not filed.

These controversies often arise from the late payment of payroll taxes or classifying employees as independent contractors rather than employees.  There are several settlement initiatives that can be helpful in these cases.

In other cases, payroll tax controversies arise where the employer fails to withhold or remit the payroll taxes to the government.  This often comes up when a business is struggling financially.  By withholding but not remitting payroll taxes to the IRS, the business has in effect taken out a loan from the government without the government’s consent.

Regardless of the cause, failing to timely pay over payroll taxes can result in penalties and interest in excess of the initial tax that wasn’t paid and, yes, it can result in the IRS shutting down the business.

The IRS Has Broad Powers When it Comes to Payroll Taxes

Payroll TaxesRate
Social Security Tax6.2%
Medicare Tax1.45%
Additional Medicare Tax (for high earners)0.9%
Federal Income TaxVaries based on withholding tables and W-4 forms
Federal Unemployment Tax (FUTA)6.0% on the first $7,000 of each employee’s wages

Our tax laws give the IRS broad powers to pursue businesses that have unpaid payroll tax liabilities.  The IRS uses these powers and is particularly aggressive in pursuing businesses for unpaid payroll taxes.

The IRS does not even have to issue its standard notices for most payroll taxes.

This can put business owners in the position of having to shut down or sell their business, resulting in loss of employment and benefits for employers and employees and their families and loss of a hard-won business reputation. Employment tax problems can also trigger criminal liability. If that is not bad enough, the government may be able to pursue the business owner personally for the business’s unpaid payroll tax liabilities.

And even worse, interest on unpaid employment taxes cannot be abated. This is true even if the interest grows due to the IRS’s error or delay in processing the case.

The IRS recognizes its broad powers when it comes to employment taxes. The IRS employment tax levy is one example. This levy allows the IRS to take the taxpayer’s property without the procedural safeguards for other taxes.

Taking its cue from the laws granting these broad powers, the IRS has even asked a court for an injunction to force a taxpayer to comply with the employment tax laws–an unprecedented move–which the court rejected.

There are other agencies that have even more power, such as the bankruptcy court. The bankruptcy court can force the IRS to accept less than the amount of payroll tax due.

Common Payroll Tax Problems

While the IRS’s powers are broad, there are several situations that involve payroll tax problems. These problem areas come up again and again. They include:

  1. Employee vs. Contractor Classification Disputes
  2. Trust Fund Recovery Penalties
  3. Criminal Liability for Unpaid Payroll Taxes

An experienced tax attorney can help you navigate these problem areas.

Pro Tip

To mitigate the financial impact of trust fund penalties, it is advisable to prioritize paying the trust fund penalty portions of payroll taxes first before other tax liabilities. Consult with our payroll tax attorneys for guidance on this strategy

Personal Liability for Payroll Taxes

There are also often disputes about whether the owner of a business entity, such as a limited liability company, is liable for the entity’s payroll taxes.

The court in Littriello v. United States, 484 F.3d 372 (6th Cir. 2007), upheld a proposed levy against an owner of a single-member LLC for employment taxes with respect to employees of the LLC where the owner was made liable for the taxes under the “check the box” regulations disregarding the LLC. The “check the box” regulations were amended on August 16, 2007, to make the disregarded entity liable for employment taxes in these situations. For employment taxes on employees of disregarded entities incurred after January 1, 2009, the default rule is that the owner is no longer liable. Treas. Reg. § 301.7701-2(c)(iv).

Despite this clear answer, in practice, the IRS often fails to follow the rule. It is common for IRS employees to wrongfully levy on the LLC owner’s personal assets for the LLC’s payroll taxes, for example.

Get Help With Your Payroll Tax Problem

An experienced payroll tax attorney can help you understand your tax obligations for your employees and help resolve your payroll tax problems.  An experienced tax attorney can also help you review and structure your employee and independent contractor relationships so that your business does not run into these types of payroll tax problems.

Please call us at (713) 909-4906 or schedule an appointment with our payroll tax attorneys.

Recent Payroll Tax Law Problem Articles

More articles about employment taxes and trust fund penalties.

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