At times, companies have made the critical error of writing net paychecks outside of the payroll system and not recording the checks with the payroll service. The reason is because the company did NOT have sufficient funds to cover payroll. Successful business owners usually have credit facilities, personal savings or other financing options to manage a cash shortfall. If business owners are not prepared, they end up constructively “Borrowing” payroll taxes to finance their business. The IRS severely penalizes businesses and charges interest on this money.
Trust Fund Taxes
A material portion of these payroll taxes are termed the “Trust fund” portion of the payroll taxes. This is the money deducted from employee paychecks for payroll taxes, withholding, etc. (941 tax) This money is the “Employees’ money” and in trust to the company to make their payments for them. When the company fails to do so, the business owner and management can face severe civil and even criminal penalties, personally.
Over time, these liabilites tend to grow and become out of control.
Restructuring and Planning of Future Business Expenditures
Analysis including, but not limited to, sales, marketing, management, employee compensation, capital structure, workflow, supply chain, tax, administrative costs and other key areas is critical to making restructuring decisions going forward. It may require financing through new credit facilities or a layoff. Accurate financial projections that plan future business expenditures, including the prior period payroll tax debt paydown, must be prepared to ensure proper planning and budgeting.
Not only do businesses need competent professional help in managing the problem, but it is vital to ensure a long term solution for the business to survive and thrive. Successful resolutions depend upon a team of professionals, specializing not only in tax law, but accounting and finance as well. Retaining the services of an experienced law firm with accounting and other professional resources mean all the difference in developing a financial plan and negotiating an Installment Agreement that is affordable to the client, yet acceptable to the IRS.
Hamrick & Evans, LLP, offers customized services for payroll tax planning and resolution. Contact us to schedule a consultation at 818.763.5292.