HOW TO SETTLE PAYROLL
TAX LIABILITIES FOR PENNIES
ON THE DOLLAR

Often, many businesses experiencing financial difficulties decide not to pay federal payroll taxes temporarily. Many do not realize that this act is a federal criminal act - a felony. Their thought usually was to "borrow" the payroll taxes until business cash flow improves. Too often business cash flow never does improve, the business fails, and huge payroll tax liabilities remain unpaid. Unfortunately for many business persons who made the decision not to pay payroll taxes, the result is personal liability for the unpaid payroll taxes.

This is commonly called "The Trust Fund Penalty" or "The 100% Penalty," which is a civil penalty. This type of penalty applies to any person who had any management type control of payroll funds (i.e. president, CFO, even a payroll clerk).

The Revenue Service tends to be aggressive in its collection of unpaid payroll taxes because it loses twice - once for not getting paid for the payroll taxes due, and again for having to give employees credit for their payroll withholdings deducted from their paychecks.

Here Is How To Do It.

An OFFER IN COMPROMISE is often the best method to settle Trust Fund Penalty liabilities. If an offer to settle represents more money than the Revenue Service can collect through normal enforced collection activities, then the OFFER IN COMPROMISE should be accepted. To determine how much you should offer, read the article on the back page of this newsletter.

In order to pursue an OFFER IN COMPROMISE, a detailed financial statement must be accurately filled out and given to the Revenue Service which lists all the offeror's assets, liabilities, income, and expenses (Form 433-A) along with the OFFER IN COMPROMISE form (Form 656).

SHOULD YOU CONSENT TO AN EXTENSION OF THE STATUTE OF LIMITATIONS ON COLLECTION?

The statute of limitations on collection concerns the amount of time the IRS is allowed to collect a tax that is due.

The IRS has ten years from the date of assessment to collect a past due tax. Often, the IRS threatens bad things such as immediate aggressive collection action unless a taxpayer

"agrees" to extend the statute of limitations on collection (via Form 900, Tax Collection Waiver) beyond ten years. Should you "agree?" Generally I advise NO WAY!

Chances are that if the IRS could have collected from you by now they would have done so. Thus, why extend the time it may collect whereby your financial situation may improve paving the way for future IRS collection activity. If the IRS threatens to do bad things to you if you do not "agree" to extending the statute of limitations on collection, seek the

advice of a competent tax litigation lawyer because chances are - the threat is both improper and possibly illegal. I routinely go out of my way to punish abusive revenue officers.

Beginning January 1, 2000, the ten year statute of limitation on collection may not be extended if there has been no levy by that date. So between now and December 31, 1999, the IRS is likely to increase the number of instances where it seeks an extension for collection.