Everything You Never Wanted to Know About Payroll Tax Problems

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DARRIN T. MISH:  Welcome to the IRS Solution Attorney show, I am THE IRS solution attorney Darrin T. Mish.  Click here to watch or read more information on IRS Back Taxes.

KATRINA MADEWELL:  And I’m your co-host Katrina Madewell thank you so much for joining us today.

DARRIN T. MISH:  How are you doing today Katrina?

KATRINA MADEWELL:  I’m doing fantastic.

DARRIN T. MISH:  That’s awesome.  Today…

KATRINA MADEWELL:  Today is going to be a long day but it’s going to be a good day.

DARRIN T. MISH:  Yeah, for sure.  Everyday can be a good day even if they start out badly. You still have the power and quality of your thoughts have the ability to make it a good day.

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KATRINA MADEWELL:  Yes.  It’s all in your mind.  We say it’s going to be a good day it’s going to be a good day.

DARRIN T. MISH:  It’s not so much what happens to you it’s about your reaction and your thoughts about what happened.  Now there are some exceptions like the day that I woke up and all my quail had been killed and murdered by a raccoon…

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  I had a little bit of trouble that day, it seemed like a lot of things went wrong that day.

KATRINA MADEWELL:  Well, the outline wasn’t prepared either so, you know.

DARRIN T. MISH:  On that particular day, you are right so it was a little bit stressful.  But today…

KATRINA MADEWELL:  Today’s show has been in the making for a while. We’ve been saying we are going to talk about for a long time and we finally are.

DARRIN T. MISH:  So, today is the long awaited payroll tax problem show, we are going to talk about how did I get myself into this mess and how do I get out so payroll taxes are a very, very serious kind of thing.

KATRINA MADEWELL:  And unless you are self-employed you probably are not going to be familiar with payroll taxes.

DARRIN T. MISH:  Yeah, I would say it’s not even so much as a self-employed thing it’s any kind of a business that has employees usually it’s more than one and usually….

KATRINA MADEWELL: Even if yourself?

DARRIN T. MISH:  Sometimes it’s just you, but not typically because usually those people that are like the sole, you know the single member sort of business usually they are paying themselves as a sole proprietorship and they are not withholding taxes and that’s all fine but in this case what we are talking about is the business that has employees that has withholding of money, they are getting a paycheck so to speak and there’s taxes that are supposed to be remitted  over to the IRS on a regular basis.

KATRINA MADEWELL:  Right quarterly, monthly or however that transpires right?

DARRIN T. MISH:  Yeah, sometimes it’s semi-weekly sometimes it’s daily it depends on the size and the amount of the payroll and it can get really complicated.

KATRINA MADEWELL:  So, what makes this tax problem so much different and more severe than any other tax problem that we talk about on the show?

DARRIN T. MISH:  Well, you know we spend about 90% of the time on the show talking about income tax right and that is what we kind of all know about the 1040 form,  you have to fill that out and you know you can send it in on April 15th or if you get an extension October 15th but payroll taxes are a little bit different because in these cases what’s happening is the employer is supposed to be holding the money on you know for, on the benefit of the employee and the government and then sending the government the money and so when they don’t do that it’s pretty serious and then compound that with the fact that these problems can get out of hand really fast because you are not just talking about your income your, in a way you are talking about all of your employees income as well and so  they just, I’ve seen you know single quarter of payroll taxes not paid they were over $50,000 or $100,000 and so you can tell it doesn’t take that long for you are talking about significant amounts of money.

KATRINA MADEWELL:  Yeah that is not uncommon at all.  One of the things you mentioned here is there could be criminal ramifications if it’s incurred intentionally now what does the IRS consider intentionally can you talk more about that?

DARRIN T. MISH:  I would think the average person who is listening to us you know here on the show and has a business and has payroll taxes and they are thinking well I’m a little bit behind on my payroll taxes or sometimes I don’t pay them on time, sometimes I’m a little late and I pay penalties and stuff, we are not talking about that guy.

KATRINA MADEWELL:  Ok.

DARRIN T. MISH:  We are talking about a guy who opens a business, runs up a big payroll tax problem, closes the business, starts another one, does it again and again and again and again and literally it’s done his actions show the intent to defraud the government out of the money.

KATRINA MADEWELL:  Well if I’m not mistaken when you file for an EIN or a Federal Tax Identification number you also have to put your personal social right as the person creating that EIN or company?

DARRIN T. MISH:  Absolutely and that’s…

KATRINA MADEWELL:  Probably for that reason.

DARRIN T. MISH:  Supposed to be so they can cross reference somewhat and things like that and I’m starting to notice that that computer system is working a little bit better than it has in the past and finding out those people.  But I would say criminal charges are pretty rare and it’s reserved for the guy who’s like it’s really egregious so I will give you an example, you know guy’s running a small restaurant chain 3 or 4 stores, he has his own you know G-5 Gulf Stream jet, he’s got a private yacht, he’s got a couple of vacation homes you know he’s got a bunch of cash in the safe in one of those homes and he owes you know 3 million dollars in payroll taxes.  That guy actually might be criminally charged because there are enough things that are going on to demonstrate that this was willful and intentional.

KATRINA MADEWELL:  How do they even know about the cash though?

DARRIN T. MISH:  Well sometimes they get raided.  You know sometimes there could be a search warrant executed and they find the money and they find them, you know they find the rare coins and they find all this extravagance and the guy is trying to say well I can’t pay my payroll taxes, oh but you can have a private jet…

KATRINA MADEWELL:  They found all the stuff.

DARRIN T. MISH:  Yeah you can have a yacht, you can have a safe with 200 grand in it.  I mean that is the kind of guy and I’m exaggerating a little bit but…

KATRINA MADEWELL:  They are out there.

DARRIN T. MISH:  Yeah those, there are cases like that on a regular basis, in fact we talked about I think we talked about one of those on the show, I think it was a Missouri restaurant chain, we might not have gotten to it but anyway…

KATRINA MADEWELL:  I don’t remember that one.

DARRIN T. MISH:  That was kind of the fact pattern where the guy was living this really extravagant lifestyle and intentionally not paying the payroll taxes.  That’s a fraud situation and you are probably going to go to prison for that.  The guy who is running a print shop with 4 employees and times go bad because he was printing in the real estate business let’s say and then when real estate tanked and the printing you know industry tanked and he was slow to fire and racked up $300,000 in payroll tax problems, that guy is not going to be criminally charged that’s you know that’s an administrative issue that we can handle.

KATRINA MADEWELL:  Is that usually some of your A typical payroll tax problem people?  Is that usually the scenario?

DARRIN T. MISH:  Yeah.  I’ll give you an example you know the business is having cash flow problems, the owner looks at the cash flow and he thinks well those IRS guys sure get a lot of my cash and he just decides to skip it, he is going to decide to fail to remit those funds over to the IRS thinking it’s in the short term, like a sort of short term sort of bridge loan…

KATRINA MADEWELL:  That’s what I was thinking their thought processes are I’ll make some money to pay for it later like I’ll earn my stupidity kind of thing right?

DARRIN T. MISH:  One thing that we entrepreneurs have in abundance and that is confidence that we can turn things around and sometimes, sometimes we are wrong right so sometimes we don’t turn things around at least as fast that we want to and that’s where these payroll taxes will sort of accumulate and accrue is you know you can’t turn it around.  And sometimes I see lots of business owners were out of the kindness of their hearts and I have a tendency to be like this to, out of the kindness of their hearts they don’t lay people off, they need to be laid off because they are thinking well I have a responsibility as their employer to them and their families and they have kids…

KATRINA MADEWELL:  If I let them go what happened to the kids?

DARRIN T. MISH:  Right but the correct way to think about that is but if my business fails then I’m also letting those people down to.  So if you are having problems making the payroll you’ve got to make a decision, you’ve got to decide how to solve it and then you’ve got to carry out that plan so if the plan is we are going to increase revenue it better be a pretty short term plan, if the plan is we need to lay off people you know our payroll is just too high then you have to cut, you just have to do it.

KATRINA MADEWELL:  Ok to maybe both, maybe we need to increase revenue’s and cut expenses and some payroll.

DARRIN T. MISH:  It’s usually both and I’ve been in that scenario before where I’m looking at the money that’s in the bank and I’m looking at the payroll obligations that I have, I’m looking what’s left over which is from me and there’s nothing and you got to make hard decisions sometimes but if the business dies then that doesn’t server the shareholder which is typically the owner anyway right?

KATRINA MADEWELL:  Exactly.

DARRIN T. MISH:  You’ve got to make those hard decisions and you just cannot be accumulating the payroll taxes because the payroll tax penalties are among the highest that we’ve ever discussed here on the show.

KATRINA MADEWELL:  What are they typically?

DARRIN T. MISH:  Well it’s like 10% for being one minute late on a deposit.  So it’s 10% gross payroll for being you know a day or a minute late so let’s say your gross payroll is $20,000, it’s $2000…

KATRINA MADEWELL:  For filing one second late.

DARRIN T. MISH:  For filing a day late.  I mean let that sink in I mean that is a significant amount of money.

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  So you don’t want to do that so what I typically do is I advise, I have lots of clients, in fact most of my payroll tax problem clients when I ask them ok so who is handling the payroll?  Invariably they say we are handling in house.

KATRINA MADEWELL:  Me.

DARRIN T. MISH:  Yeah sometimes me but usually they say I am handling in house and such and such screwed it up.  And my first thing I usually tell them is you got to go with a payroll service that’s crazy, that’s insanity because (inaudible) as compared to that penalty that I just gave you an example of.  I mean 2 grand would pay my payroll tax service fees for 2 years practically.  So…

KATRINA MADEWELL:  It pays for itself and then some.

DARRIN T. MISH:  Exactly so and it’s their responsibility to make sure that the money, the payroll tax gets deposited correctly, all the forms get you know deposited correctly, the W-2’s are done correctly, all that’s done perfectly, that’s up to the payroll service and for a really small company it’s like 100 bucks or 50 bucks for per pay period I mean it’s like…

KATRINA MADEWELL:  It’s so cheap.

DARRIN T. MISH:  Yeah so negligible as to the liability they are assuming it’s crazy.  I’ve had accounting type people work for me and say we should get into doing payroll service and I’m like you are crazy, you are insane.

KATRINA MADEWELL:  Yeah.

DARRIN T. MISH:  There’s no way I’m going to take on that liability.  One little mistake that you make and I get to pay for it so that’s why we don’t handle payroll service.

KATRINA MADEWELL:  And it’s expensive, expensive.

DARRIN T. MISH:  Yeah those penalties get out of hand really quickly.

KATRINA MADEWELL:  So you are listening to the IRS Solution Attorney show and our topic for today’s show is the Payroll Tax Problems, we’ve been threatening this show for a while but we are actually talking about how did you get yourself into the mess and how do you get out.  When we come back after this short break we are going to talk about how these problems get out of hand so quickly like what makes this domino, snowball effect just continues to roll on.  We will be back in just a minute.

KATRINA MADEWELL:  You are listening to the IRS Solution Attorney show I am your co-host Katrina Madewell.

DARRIN T. MISH:  And I am the IRS Solution Attorney Darrin T. Mish.

KATRINA MADEWELL:  And today’s show is all about the Payroll tax problem issues and how in the world did you get into that mess to begin with and how do you get out and you know Darrin I never, I don’t usually share this on the story but I’ve only had an issue with the IRS once and I opened my own business at 23 years old with my partner, we had got some bad tax advice, opened as a C corporation right out of the gate, just horrible tax advice right, looking back I know better but at 23 I didn’t and there was a bookkeeper that I thought was taking care of all of this stuff and writing the checks and sending everything off and I didn’t know until we had an IRS person knock at the door and say by the way you owe us some money for your payroll taxes.

DARRIN T. MISH:  That’s like such a stereo typical story I mean that’s really normal by the way, you know either business owner doesn’t know or doesn’t care how the situation works or thinks somebody is you know quote taking care of it and that’s how you get into trouble.

KATRINA MADEWELL:  I was so scared let me tell you what I was like I think 24 or 25 years old, I was pregnant with Madeline, my daughter that is in high school now and I think my only saving grace was since I didn’t know you at the time was I got a female revenue officer that came in and I think she just felt bad for me.  I was just this young kid, I was pregnant, I was scared you know what because I owed the IRS over 20 grand in payroll taxes.

DARRIN T. MISH:  I think any right thinking human being in that situation and seeing your big belly.

KATRINA MADEWELL:  I had a big old belly, I was like 9 months pregnant.

DARRIN T. MISH:  Would have taken pity on you but you never know you know there is all kinds of different IRS employees some are nice, some are smart, some aren’t, some are mean, it’s all over the place.

KATRINA MADEWELL:  She got a hold bunch of penalties and fees abated because I’d never had a problem with the IRS before.

DARRIN T. MISH:  I had a local IRS revenue officer absolutely lie to me, he absolutely lied to me, I had a deal worked out with him where he wasn’t going to levy my client, my client had already paid him in a payroll tax case $128,000, our deal was we were going to wait for the penalties to adjust and then whatever was left which was $1500 or so, my guy was going to write a check and we were going to be done that was our deal, revenue officer decides to levy the bank account anyway over this measly 1500 bucks, my client was about to send him  the money and the irony is because the revenue officer levied the money they are not going to get the money for 21 days versus….

KATRINA MADEWELL:  Because they don’t get it right away.

DARRIN T. MISH:  They don’t get it right away, versus if my client had just written the check the IRS would have gotten the money faster so revenue officer denied that that was ever the deal, he is the first revenue officer to ever overtly lie to me and so we had a little discussion about how we were going to work together and move forward it wasn’t super pleasant.

KATRINA MADEWELL:  Did you get it figured out I’m sure?

DARRIN T. MISH:  Yeah we figured out that we don’t like each other and I’m going to make his life difficult.

KATRINA MADEWELL:  Now can you get a new revenue officer assigned or it just doesn’t work like that?

DARRIN T. MISH:  Not typically so but there’s lots of administrative ways that I can make life you know just a little bit harder for him and because I know the guy’s a liar and I don’t say that lightly I hope he is listening because he is a liar now I just pay for the file so every time we have a conversation he is going to get a fax it says here’s what we talked about if you disagree you need to call me back.

KATRINA MADEWELL:  So you are literally going to be his problem child until he just can’t wait to make you go away.

DARRIN T. MISH:  What will happen because I have experienced similar but not exactly the same situations in the past, what will happen, is it may take a few years but he will come around and we will eventually become very friendly because he is going to see it my way, I’m a straight shooter, we are going to follow the law and we are going to do it the right way but you are not going to lie to me.

KATRINA MADEWELL:  Darrin’s like I am going to twist your arm backwards and you will agree with me.

DARRIN T. MISH:  Well you know there is only one way to live your life and that’s to be 100% truthful and honest and when you aren’t that way….

KATRINA MADEWELL:  It’s kind of surprising really that you had a revenue officer lie to you I think it’s surprising.  I mean they are not every bodies favorite person but that just surprises me.

DARRIN T. MISH:  Yeah it was a little bit shocking to me.

KATRINA MADEWELL:  So how do these problems end up getting so big to where someone is dropping this on your lap and it’s a, it’s a payroll tax issue that’s 50-60-$100,000.

DARRIN T. MISH:  Well we kind of alluded to that in the last segment of the show where we talked about you know it’s what you are doing is you are taking the money that was withheld from the employees and so the more employees you have and the more money they earn the more payroll obligation there is every pay period and that’s every month and that’s every quarter and so it can get out of hand really, really fast.

KATRINA MADEWELL:  Do you think that the person, like the business owner or the person that is responsible for that debt that they actually realize how high that number is as it’s accruing cause I don’t think they do right there is not like a running tally or tab they are sending them.

DARRIN T. MISH:  Probably not until that first 941 gets filed at the end of the quarter and then they are like wow that’s a lot of money.  I think they probably have a vague idea because they know how much they are quote borrowing by not paying the taxes over and I’ve frankly haven’t done this since I’ve been a tax problem attorney for over 20 years but I have made that decision as a business owner to or I made that decision like those guys get a lot of my money I’m just going to borrow it I will make it good that’s a recipe for disaster because you know the penalties are out of hand, it accrues really fast and they are not, and we are going to talk about this in a later segment but they are not super amenable to working it out.

KATRINA MADEWELL:  And I just love that you know we totally label you as the IRS Solution Attorney because you are and that you admit look I’m human I actually did this, take it from me it’s not a good idea.

DARRIN T. MISH:  I’m a strong believer that we learn from our mistakes and you know I’m 49 years old now and when I was in my 20 something and even 30 somethings I didn’t always make the right decisions and I still don’t always make the 100% of all right decisions throughout my life.

KATRINA MADEWELL:  Hopefully there less as you approach 50 right?

DARRIN T. MISH:  Yes as you age and you know if you are doing it right you gain wisdom right, wisdom I think is knowing what the right thing to do is and the wrong thing to do as in doing the right thing.

KATRINA MADEWELL:  So what can actually happen when you start stacking up this tax bill and let’s say now this thing is 6 figures, it’s a hundred grand, what actually happens like what does the IRS do in that scenario?

DARRIN T. MISH:  Well we talked about the criminal charges and they are relatively rare but you could end up with a prison term and you could go to prison for the failure you know to pay the payroll taxes assuming that they can prove intent that you were intentionally doing this.

KATRINA MADEWELL:  What’s the prison time for that do you know?

DARRIN T. MISH:  I don’t know it’s going to be a few years probably…

KATRINA MADEWELL:  Most of your people don’t go to prison so.

DARRIN T. MISH:  No I’ve never, knock on wood, never had a payroll tax client go to prison because I probably wouldn’t take the case if it was the guy with you know the three you know 2 vacation homes and the yacht and the private jet.  I’d probably take a ride in the private jet, maybe go out on the yacht but probably wouldn’t take the case because you know bad things are going to happen but never had any client go to prison in the tax problem scenario when I was a criminal defense attorney yeah I had some people that went to prison.

KATRINA MADEWELL:  I mean I would imagine if those revenue officers come in and they see that private jet and all that stuff that would be the first thing that they would want to do is start seizing those assets.

DARRIN T. MISH:  Well absolutely because I mean those are probably assets that can be liquidated to pay the tax debt and there are some people out there in the world that appear to be wealthy and really aren’t…

KATRINA MADEWELL:  And loaded with debt.

DARRIN T. MISH:  So you know it could be the jet is leased or maybe it’s even a fraction you know where they are just basically paying for the ride so you couldn’t seize the jet then, could be the yacht is rented it could be and what’s a yacht anyway right is a yacht a 35 foot boat or is it a 350 foot boat I mean that definition gets a little wobbly for me and then the vacation homes if they were encumbered to the hilt and the guy was just making the paying of the mortgage payments then there might not be a lot there.

KATRINA MADEWELL:  He’s got three mortgage payments on each house.

DARRIN T. MISH:  But those in that illustration and that example those would still in my mind be indicators of somebody who is intentionally you know not paying the payroll tax because they are living this truly extravagant  lifestyle and I made this example on purpose like over the top, we are not talking about the guy that lives you know in a million dollar house, a one million dollar house in Avala  and drives a Jag and his wife drives a Porsche you know we are not talking about that guy we are talking about the guy that makes that guy look poor.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  You know so.

KATRINA MADEWELL:  How long does it take them to seize assets once they start that process how quick is that?

DARRIN T. MISH:  It can be relatively quick in a matter of months you know it can be if you don’t get help, if you don’t get counsel it’s probably going to be quicker than not…

KATRINA MADEWELL:  And I imagine they wouldn’t really tell you like they will say yeah we intend to seize and levy your assets but they probably are not going to say yeah we are actually in the process of doing this right?

DARRIN T. MISH:  Well  remember they have to go through certain administrative steps in order to provide the tax payer with due process so they have to issue a final notice of intent to levy, it has to come out certified mail, you have to have an opportunity to appeal that and then ultimately what’s going to happen is a revenue officer’s going to give that tax payer or tax payers a long list of you know documents that they need and then there’s going to be some solution proposed at some point in time, sometimes the solution is well we need you to liquidate that second house that’s paid for you know.  Or we need you to sell that corvette that is paid for and if those timeline, those time frames are not met then ultimately the IRS will roll up the wrecker to the corvette that’s you know paid free and clear and worth 50 grand and they will hook it up and they will take it away.  I’ve never had it happen to any of my clients…

KATRINA MADEWELL:  Came close on one right?

DARRIN T. MISH:  Yeah came close on one corvette because I’m pretty sure the revenue officer wanted to drive it.

KATRINA MADEWELL:  Mid-life crisis.

DARRIN T. MISH:  That revenue officer is either retired or moved we don’t deal with him anymore but…

KATRINA MADEWELL:  Can they actually shut down the business has that happened?

DARRIN T. MISH:  They can shut down the business if its egregious enough if there is not a plan, you know one of the things that you have to do is you have to get current with your ongoing payroll tax liabilities so if you can’t get current meaning start paying your payroll taxes right and on time, if you can’t do that then there is no hope the business will get shut down because what you are doing is you are just incurring, like let’s say….

KATRINA MADEWELL:  The hole’s getting bigger.

DARRIN T. MISH:   Yeah let’s say you are paying $2000 a month towards the back taxes but you are incurring new tax at the rate of $2000 a month I mean it’s not a…..

KATRINA MADEWELL:  Well, we are in the process of talking about payroll tax problems. How did you get into the mess and how can you actually get out and we are talking about what can happen when you actually have that problem, we are going to continue with this conversation in just a moment we will be back.

KATRINA MADEWELL:  Welcome back you are listening to the IRS Solution Attorney show and we are knee deep in the middle of talking about payroll tax problems and what happens if you get yourself into the mess and how do you get out and right before in the last segment we were talking about some of the things the IRS can actually do like what could happen if you have those payroll tax problems and you owe the IRS a bunch of money right?

DARRIN T. MISH:  Yeah so to quickly recap what we are talking about there can be criminal charges, those are rare but they can happen, they can shut down your business and they can seize your assets and sell those at auction.  So the fourth thing that can happen is really pretty serious and it’s a little bit complicated but I’m going to give it a shot to explain it in this segment.  The IRS can go ahead and assess what is called the trust fund portion of the unpaid taxes against responsible parties.

KATRINA MADEWELL:  And so what does that mean?

DARRIN T. MISH:  So a responsible party is someone who is making the decisions like, decisions like who can hire and fire employees, who has signature authority on bank accounts, who made the decision to pay the debts other than the payroll taxes, so in other words who made the decision to pay the light bill instead of the payroll taxes.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  And I like, basically say it’s who’s running the show like who’s the boss here, who’s making the decisions here about like hey it would be a really good idea to borrow the payroll tax money so we can pay the lights or so we can pay, not payroll that kind of thing.

KATRINA MADEWELL:  And that’s usually the person that they are looking for.

DARRIN T. MISH:  Yeah it’s usually, you know I represent a lot of people or a lot of companies where there is one shareholder ok so it’s not, that’s not a real hard decision ok it’s that guy is the, is the responsible party.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  But there are other cases where it is a little bit harder of a decision like for example husband and wife, you know 50-50 shareholders or 49-51 something like that.  Well it could be both of those people or it could be just one of those people so let’s just be, give you a hypothetical where it’s the husband is basically running the day to day operations, wife is a shareholder but she is really a shareholder in name only…

KATRINA MADEWELL:  Yeah she is in the back seat?

DARRIN T. MISH:  She’s just on there you know, if she has signature authority at the bank that’s a bad fact, if she never signed any checks that’s probably a good fact, if she ever signed any checks during these periods in question terrible fact…

KATRINA MADEWELL:  She’s in trouble.

DARRIN T. MISH:  Probably going to be held responsible and so what can happen is the IRS will assess against those responsible individuals, those responsible human beings, they will assess what is called the trust fund portion of the unpaid payroll taxes.

KATRINA MADEWELL:  So what is the trust fund portion mean?

DARRIN T. MISH:  The trust fund portion is that tax that is being withheld for the benefit of the employee as opposed to the benefit of the employer so what that means is it’s half of the FICA half of the Medicare and 100% of the Federal income tax withheld so does that make sense?

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  So when you are a wage earner the employer matches the FICA, matches the Medicare tax and you pay as the employee all of the Federal income tax so the trust fund portion is usually something like 65% of the total payroll tax obligation.  So let’s say a hypothetical company owed 100 grand in total payroll tax so ACME Inc. owes 100 grand in payroll tax right?

KATRINA MADEWELL:  Mm hm.

DARRIN T. MISH:  Well, the trust fund portion of that is typically going to be about 65% that would be $65,000 in this case, and it’s rough something like that 60-65% so what would happen is ACME Inc. still owes a hundred grand but John Smith, President and only shareholder of ACME Inc. is going to owe 65 grand now you might be thinking well gee how did a hundred-thousand-dollar debt go to $165,000 now it’s the same money that we are talking here does that make sense?

KATRINA MADEWELL:  No

DARRIN T. MISH:  It’s the same money so ACME the company owes a hundred and John Smith the shareholder owes 65 grand that he is ultimately be held responsible for but if John Smith pays $5000 of the $65,000 that also comes off of the hundred thousand so now the company only owes $95,000.

KATRINA MADEWELL:  Ok.

DARRIN T. MISH:  Makes sense?

KATRINA MADEWELL:  I just don’t know where the 65 comes in in the hundred.

DARRIN T. MISH:  The 65 was the trust fund portion that’s the portion that only that portion which that individual could be held responsible.

KATRINA MADEWELL:  Ok.

DARRIN T. MISH:  All the employees

KATRINA MADEWELL:  So personally liable ok.

DARRIN T. MISH:  Personally liable exactly and so the kind of the horror story is company runs up the debt and you think well I have a corporation so I have the corporate shield and I am immune from personal liability…

KATRINA MADEWELL:  That’s a good point.

DARRIN T. MISH:  That doesn’t happen in this context.

KATRINA MADEWELL:  Not for payroll taxes.

DARRIN T. MISH:  They pierce that corporate veil based upon this responsible person test and you are going to be held on the hook so let’s say your company has no assets it’s defunct, this is very common by the way, company is defunct let’s say it’s some kind of services business there is really no assets, assets are like desks and chairs and stuff like that.  So there’s no assets really to speak of, that company closes down but John Smith in our example, he still owes 65 grand and his house is paid for and he’s driving paid off cars, he has 100 grand cash in the bank you know so on and so forth.

KATRINA MADEWELL:  They are going to come get it.

DARRIN T. MISH:  They are going to come get it that’s what’s going to happen.

KATRINA MADEWELL:  And they, we talked about the 2 people being responsible so that could be husband and wife like you mentioned, it could be 2 partners they are going to hold them both equally responsible right cause I mean from my recollection I remember the lady saying well I don’t care about your partner and the IRS doesn’t look at it like that we want the money however we can get it, we don’t care if one person pays it or you guys pay it equally or however it shakes out we are going to come after both of you equally.

DARRIN T. MISH:  Yeah so you remember we’ve had a train wreck like recently that was about this issue but it’s a joint and several liabilities which means both partners are equally responsible and…

KATRINA MADEWELL:  100% for all of it.

DARRIN T. MISH:  100% for all of it so let’s say in my hypothetical instead of just having John Smith we now have Jane Smith to.

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  OK and let’s say they are divorced now ok, they both owe 65 grand now if John pays 5 grand that 5 grand comes off of Jane’s as well but here is the kicker Congress created the law so that the Interest streams run separately and independently and there not offset by the other person so if this goes on and on and on for years they both have to pay separate interest on that liability which I think is totally unfair.

KATRINA MADEWELL:  That’s double, double penalty and interest.

DARRIN T. MISH:  Yeah it absolutely is.  It’s not double penalty because there is actually no penalty on the trust fund recovery penalty assessment which is odd.

KATRINA MADEWELL:  But it’s double tacked up fees.

DARRIN T. MISH:  It’s definitely double interest and it’s not fair but that is the way the law is and every time this comes up to change well I mean it’s not a very sympathetic crowd right?

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  I mean you are not going to get a lot of Politicians sticking their neck out you know sticking their necks out for someone who didn’t pay their taxes so that it’s just like stuck in the law.

KATRINA MADEWELL:  Right.  So that $65,000 they don’t look at it and go ok John you owe 30 something thousand, Jane you owe 30 something thousand and we are going to be done they say you both owe 65 and we are going to get it however we can.

DARRIN T. MISH:  Yeah and almost by definitions no 2 people have the same financial situation right even a husband and wife really don’t technically have the exactly the same financial situation typically but since no 2 people have the same financial situation then the IRS by definition is going to be chasing one person to the detriment of the other so in my example if John Smith the husband had a hundred grand in the bank and Jane Smith had zero they are coming after John.

KATRINA MADEWELL:  Yeah.

DARRIN T. MISH:  Jane’s going to ultimately get the benefit if, of it if they you know take 65 grand out of his bank account she is going….

KATRINA MADEWELL:  They are going to get it where they can.

DARRIN T. MISH:  They are going to get it where they can and as a tax payer you know as a citizen of the United States I kind of think that’s fair I mean they should get the money.

KATRINA MADEWELL:  So an attorney question can John sue Jane for the 50 or 30 something thousand that she didn’t pay?

DARRIN T. MISH:  Yes.  You know depending upon what her degree of responsibility was right?

KATRINA MADEWELL:  But that would be a personal separate suit?

DARRIN T. MISH:  Absolutely and I don’t, they are not very common…

KATRINA MADEWELL:  But it was just a curious question.

DARRIN T. MISH:  Yeah it certainly could happen and that’s the answer.  I’ve had a number of cases where you know 4 people come in for a consult and there like all 4 partners of the company or they are all 4 officers of the company and they are like we want to handle this you know we want you to handle it.  Well it creates kind of an interesting situation because don’t I have a conflict of interest almost by definition because out of those 4 guys there’s going to be some guy that has more money than the others.

KATRINA MADEWELL:  Right so how do you handle that as an attorney?

DARRIN T. MISH:  Unless they are all flat broke, destitute…

KATRINA MADEWELL:  Then that’s different right.

DARRIN T. MISH:  And technically I mean there’s the possibility of a conflict.  So the law allows us to waive the, allows the taxpayer the client to waive the conflict as long as they’ve been, noticed about the potential for conflict and they agree to have me represent them anyway.

In the case where there are 4 partners I feel pretty uncomfortable typically doing that I only take that case under ideal circumstances.  In some cases, there’s 2 you know partners, typically husband and wife…

KATRINA MADEWELL: Right.

DARRIN T. MISH:  And I have them sign the conflict waiver and it’s ok but what happens when they, so they come in the office and they are happily married but this takes a year to handle and over that year the financial strain and the stress and everything and they start to drift apart and they only want to split what happens?

KATRINA MADEWELL:  Yeah.

DARRIN T. MISH:  Well now I think I have an actual conflict right…

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  And in my interpretation…

KATRINA MADEWELL:  And there’s another there is a divorce attorney in the mix.

DARRIN T. MISH:  In my interpretation in the rolls is I can’t represent either one.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  That is my interpretation so it does create sticky situations at times.

KATRINA MADEWELL:  Now is there anybody else that could actually be held responsible other than the shareholders or the partners or the owners?

DARRIN T. MISH:  Well, I would say shareholders, officers sometimes the chief financial officer and sometimes the bookkeeper or an accountant can technically be held responsible, it comes down to their ability to make those decisions you know could they hire and fire, are they actually the ones that are making the decisions to which bills to pay, are they signing checks that kind of thing.  If they’re just, we’ve had some cases where employee is filling out the check but doesn’t sign it, well I don’t think filling out the check makes you responsible but I think making the decision to pay you know the electric bill instead of the payroll taxes and then signing the check I think that that is a problem.

KATRINA MADEWELL:  So, only if the bookkeeper is like an actual signer on the account?

DARRIN T. MISH:  Yeah, that’s not exactly the rule but I would say that’s a really good indicator, if the bookkeeper’s signing checks and making the decisions, and I’ve seen cases like that I don’t agree with people letting bookkeepers do that but I’ve seen those cases then that’s really bad the bookkeeper could certainly be held responsible and you would think that’s pretty unfair but the whole decision, the whole idea is was it willful and knowing who’s making that decision and was that decision willful and knowing didn’t pay the payroll tax.

KATRINA MADEWELL:   Yeah that makes sense to me I know so we’ve talked a lot about you know how businesses get into this rut having a payroll tax problem and then what can actually happen that was a very informative part of the segment and now I know why we can never usually touch on that when we talk about it in some of the other shows because it really is a whole show.

DARRIN T. MISH:  It’s so different and it’s so complex and we are just skimming the surface here I mean we only have so much time on the show we are just kind of skimming over the high points here and it’s just so different then income tax really.

KATRINA MADEWELL:  Yeah so I guess the bigger question and part of this will actually role into the next segment is you know what can be done like at what point does it make sense to hire somebody like you to handle it Darrin and at what point does someone try to handle this on their own and what tips can we give them.

DARRIN T. MISH:  So my role in a payroll tax case is a little bit different then an income tax case.  In an income tax case I’m typically trying to make a deal right I’m trying to get the amount to do down and I’m trying to kind of pay for my fee by the savings in taxes I mean I don’t usually say it that way but that’s basically what I do.

KATRINA MADEWELL:  It makes sense, yeah.

DARRIN T. MISH:  In a payroll tax case what I’m doing is I’m more of a liaison between the client and the IRS and I’m there almost as like a (inaudible) to keep the, the service from doing really bad stuff.  I’m just there like a safety valve to try and get something worked out usually not going to save you a bunch of money but I can often prevent almost always I can prevent like the absolute horror stories that we talked about on the show or the business getting shut down and stuff getting seized.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  That’s my job in a payroll tax case, it’s just try to minimize the damage and try and get ultimately some solution worked out.

KATRINA MADEWELL:  Alright, so you are listening to the IRS Solution Attorney show we have to take a quick break.  When we come back after this last segment here we are going to talk about you know what else you can do, what are some of the options that you have, what are some of the options you don’t have and then don’t miss our IRS train wreck of the week you are listening to the IRS Solution Attorney show.  We will be back in just a moment.

DARRIN T. MISH:  Welcome back to the IRS Solution Attorney show I am THE IRS solution attorney Darrin T. Mish.

KATRINA MADEWELL:  And I am your co-host thank you so much for sticking with us through the break.

DARRIN T. MISH:  Today’s show we are talking about payroll tax problems, how you got yourself into this mess and you are going to get yourself out.

KATRINA MADEWELL:  It’s been a doozy we have been promising to talk about this for a long time we finally planned today’s show all around that so if you have any issue with payroll taxes or know anyone that has definitely catch this entire show via podcast.

DARRIN T. MISH:  You can catch it via podcast on ITunes you can download the app from the ITunes store as well as the android store, you can visit our website, our main website at getirshelp.com or theirssolutionattorney.com as well as Facebook The IRS Solution Attorney as well.

KATRINA MADEWELL:  And then if you are having these problems you can actually call Darrin at 888-get-mish.

DARRIN T. MISH:  That’s 888-438-6474.

KATRINA MADEWELL:  In the earlier part of the show some of the things we talked about is you know what happens if you have this IRS tax problem, you know what usually starts it, what can happen, what can the IRS do to you if you have it and then we were also chatting about you know what can be done like how do we fix it and so the first tip on your list is get current now and so when you say get current now do you mean I can start paying my payroll taxes as of right now and then make up that stuff I’m already delinquent on or no?

DARRIN T. MISH:  Yeah I’m talking about when I say get current I mean start paying your payroll taxes today like now seriously I’m talking now like forget about the past we got to get current…

KATRINA MADEWELL:  Fix it later.

DARRIN T. MISH:  Yeah we can fix all that, if that’s all that’s happened we can fix ok probably we can fix that but we cannot fix it if we cannot get you current which means your next payroll pay the payroll taxes, remit the payroll taxes.  The biggest common mistake I see is people, they think that they are doing well so they are going to pay today’s payroll taxes to pay last quarters payroll taxes…

KATRINA MADEWELL:  Tomorrow’s.  Ok.

DARRIN T. MISH:  And that’s just a screwed up thinking because you are going to always you are perpetually going to have a problem if you continue to do the same thing over and over you are going to have a payroll tax problem until the end of time because you’ve got to just stop the bleeding you have to cut the head off the snake.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  And just keep going and get current because a revenue officer if you are not current all of the options that are available to you are off the table because you are not considered to be current.

KATRINA MADEWELL:  You are still delinquent.

DARRIN T. MISH:  You are delinquent and you are running up interest and penalties.

KATRINA MADEWELL:  It’s kind of like saying I am going to pay my bills but I don’t have a job like you can’t start paying the bills until you have a job right?

DARRIN T. MISH:  It’s kind of like that.  That’s the idea is that you are, if you are borrowing today’s payroll taxes to pay yesterdays you know payroll taxes then you are just digging a hole and you are just not stopping you, the hole is just going to get deeper and deeper and deeper.

KATRINA MADEWELL:  And we talk about the offer in compromise a lot on the show is that an option for payroll taxes?

DARRIN T. MISH:  If the business is a going concern, if it’s still in business it’s technically possible to file an offer in compromise but I can tell you it will not be accepted and the reason is it’s considered to be against public policy why well if you have, let’s say your business is a plumbing business and you are not paying your payroll taxes you have an unfair advantage over all of the other plumbing businesses in town that are paying their payroll taxes so you by definition if you’ve got  a deal on the payroll taxes you know you have an unfair advantage and so that is why the government won’t let you do it.  I’ve seen lots of offers filed never seen one accepted in this particular kind of circumstances.

KATRINA MADEWELL:  So usually it’s going to be what a repayment thing right away you are paying all your stuff current and then so we have let’s say 20-25,000 in back payroll taxes you are just going to go on an installment or repayment agreement with them?

DARRIN T. MISH:  Yeah typically it’s going to be an installment agreement in that case.  A $25,000 payroll tax case is like small it’s a piece of cake.  It’s when they get to be $250,000 or 2.5 million then it’s kind of a problem.

KATRINA MADEWELL:  How far out do they spread those like (inaudible) is a number that comes a word that comes to my mind but how far can they actually spread that repayment out?

DARRIN T. MISH:  Well technically they can spread it out for the life of the statute of limitations it’s the same 10-year statute as there is in income tax you know but typically the government’s not going to give you a 10-year repayment plan on payroll taxes.

KATRINA MADEWELL:  Well if you owed a million bucks they might.

DARRIN T. MISH:  Maybe they might it’s especially if they think they can get paid but typically in most of these installment agreements were income worked out in 2-3-year time frame something like that and that’s not too bad for most businesses because there is sort of a correlation to high tax problems, high payroll tax problem and high revenue.  I mean there is a correlation…

KATRINA MADEWELL:  Yes.

DARRIN T. MISH:  It’s kind of hard to have one…

KATRINA MADEWELL:  But that’s true yes.

DARRIN T. MISH:  Unless the business was big and then shrank dramatically that can happen.  In that case what you would typically would do is you would close the company and then you would just wait for the trust fund recovery penalty to be assessed against the shareholders you know the responsible people…

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  And then once the trust fund recovery penalties been assessed and those responsible people then then it’s kind of like an income tax case from there.

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  You know the only option that’s not on the table at that point would be you can’t discharge that type of tax in bankruptcy ever.

KATRINA MADEWELL:  I see.

DARRIN T. MISH:  So if, if, have the trust fund recovery penalty assessed against you then you can do an offer in compromise, you can do an installment agreement, you can do hardship, you ride out the statute of limitations, you can do those things but it’s kind of like an income tax case at that point.

KATRINA MADEWELL:  So what if you have just a rockin business, something happened and you’ve got this temporary hardship that you are going to be able to overcome what happens in that scenario?

DARRIN T. MISH:  Sometimes the IRS will place the business in hardship status which is also known as currently not collectible, sometimes they will catch you a break and just kind of put you on the back burner and let you get back on your feet, it’s kind of rare, it’s got to be subject to particular circumstances and facts and what not.

KATRINA MADEWELL:  And who you get probably.

DARRIN T. MISH:  Yeah for sure.

KATRINA MADEWELL:  And the last thing is basically that trust fund recovery penalty against the responsible person.

DARRIN T. MISH:  Yeah we talked about that just now you know an offer and compromise is still available for those folks if there you know facts and circumstances will mean it if they are broke, we are probably going to be able to get an offer through.   In fact…

KATRINA MADEWELL:  And it’s about that time.

DARRIN T. MISH:  So, in this particular you know story I have a client, this is not final ok it’s just been recommended for acceptance but I’m pretty proud of this case because  this case was an offer in compromise (OIC), gentleman was involved in a business where they racked up over a half million or pretty close to a half million dollars in payroll tax liability, there were 4 separate parties as I recall that were ultimately  held responsible for the payroll taxes, you know the trust fund recovery and penalty in the amount of around a half a million bucks.  My guy came in to me, none of the other people came in to visit me, we did the calculation, we decided to file an offer in compromise for about $66,000 so it wasn’t a tiny offer, it was a pretty good size offer and umm this offer was pending for close a year, got a call from an offer specialist and she said you know I am going to recommend this offer as filed.  So in other words she never asked me a single question, she didn’t ask me for any updated documentation nothing.  She basically said this offer was perfectly filed.  So that’s really excited for him I know that this particular individual has become a friend of mine, he was really kind of high strung, he was really stressing out about it because a half a million dollars is a lot of money…

KATRINA MADEWELL:   Yes.

DARRIN T. MISH:  And he felt like it was the end of his life as he knew it and if this thing ultimately goes thru it has to go thru some managerial approval and things like that…

KATRINA MADEWELL:  Right.

DARRIN T. MISH:  When this thing actually goes through he’s going to be over the moon excited and happy.

KATRINA MADEWELL:  Oh I bet.  The problem is to again with that being you know something that’s assessed against everybody and they don’t care how it’s paid is you know you had somebody like me when I had that issue many moons ago you know the other partner was like well I will just live on cash and won’t put any money in the bank and I’m like well I can’t live like that…

DARRIN T. MISH:  For 10 years.

KATRINA MADEWELL:  Yeah so guess who got to pay all the payroll tax…

DARRIN T. MISH:  So, when my guys you know when my guys offer is accepted and paid that $66,000 will come off of everybody else’s half million ok there is actually one person in this whole story that is not my guy there’s one person in this story that actually has money and he’s just decided to take that you know cash sort of lifestyle approach and ultimately he’s probably going to end up paying for it it’s just going to take a while so he’s just putting off paying the piper but it will happen.

KATRINA MADEWELL:  And we’ve had some callers that will say just run and hide but I couldn’t live like that.

DARRIN T. MISH:  Well you know.

KATRINA MADEWELL:  So…

DARRIN T. MISH:  If the time on the statutes is short then maybe run and hide is not bad advice but if it’s 10 years, 10 years to run and hide especially if you are already 50 or 60 years old I mean 10 years is kind of like the last earning years you have left.

KATRINA MADEWELL:  If you are like me if you don’t want to do it call Darrin 888-get-mish.

DARRIN T. MISH:  That’s 888-438-6474.

KATRINA MADEWELL:  Thanks so much for joining us this week we will be back same time same place next week for this week…

DARRIN T. MISH:  We’re out.

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