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Federal agencies found to owe payroll taxes, is IRS collecting?

Virtually everyone must pay some sort of taxes. For a sole proprietor, small business owner or other business with employees, one of the types of taxes which must be withheld and paid for employees is the payroll tax. The Internal Revenue Service does not look favorably upon unpaid payroll taxes. Or does it?

It turns out that there are several federal agencies that are behind on their payroll taxes. According to reliable sources, 70 federal agencies owed about $14 million in unpaid taxes due to 126 delinquent accounts in 2011. Forty of those accounts are behind three years.

If a small business owner was three years behind in paying payroll taxes, it might be a safe bet to say that the business would be at a significant risk for an audit. Not so with these federal agencies apparently. Did you know that the IRS can't assess interest or penalties on a federal agency, and can't take enforcement actions? By contrast, if a small business fails to pay employment taxes, the IRS can file a tax lien and seize property.

It was reported that 43 delinquent federal agencies finally paid for tax year 2008, but that 48 cases worth about $176,000 were written off by the IRS due to the expiration of their collection status. We have spoken previously in this blog that the IRS uses a stick and a carrot approach to tax collection. Based on this report, it seems as though the IRS is left with only a carrot when it comes to past-due payroll taxes owed by federal agencies.

Audits can be nerve wracking for either individuals or small businesses. That said, one way to minimize the risk of a tax audit is to file returns and pay taxes on time. This includes payroll taxes.

Source: The Washington Post, "Some federal agencies delinquent on payroll taxes," Eric Yoder, Sept. 28, 2012

  • At our San Francisco law office, we represent clients with tax issues including those dealing with IRS audits or back taxes, such as those mentioned in this post.

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