The IRS has shown increasing willingness to work out installment agreements with individuals and business entities that could not meet their tax obligations. But that doesn’t mean you can shirk your current responsibilities. Accordingly, in a new case, Coastal Luxury Management, TC Memo 2019-43, 4/29/19, the Tax Court upheld the IRS’ refusal to approve an installment agreement for unpaid payroll taxes.
The IRS is vigilant about pursuing payroll tax debtors. In fact, under the “trust fund penalty,” it may impose tax liability for the full amount of back taxes on a responsible person, such as a business owner. However, a tax debtor may arrange an affordable payment plan with the IRS if these six requirements are met:
1. The taxpayer files any outstanding employment tax returns. You may not negotiate your delinquent tax balance unless all tax returns have been filed.
2. The taxpayer makes all current quarterly payroll tax deposits. You can’t negotiate your balance if you have payroll tax deposits that have not been made for the current quarter.
3. The taxpayer completes Form 433-B, Collection Information Statement for Businesses. This financial information form is required to negotiate a payment arrangement to satisfy delinquent taxes.
4. The taxpayer gathers documents to back the entries made on Form 433-B. You must support your income and expenses with documentation proving that the statements you make are accurate.
5. The taxpayer provides the financial information to the IRS agent working on the case and requests an installment agreement in writing. The installment agreement request must state the amount per month you intend to pay, the date the payments will begin and the tax periods the installment agreement covers.
6. The taxpayer complies with any deadlines set by the IRS to provide additional documents or information. Failure to do so may result in a garnishment against your business bank account or accounts receivable.
Facts of the new case: The taxpayer is a hospitality management company that operates food and wine festivals in California. It received a notice of intent to levy from the IRS for unpaid payroll taxes totaling over $1.4 million. The firm’s counsel checked the box for an installment agreement and did not dispute the underlying liabilities or request any other relief. In addition, the counsel stated that the firm was behind on its tax obligations because an employee had embezzled funds.
However, the IRS officer in charge of determining the outcome of the request denied this tax relief. In doing so, she noted that the taxpayer wasn’t in compliance with its current federal employment tax deposit obligations, as required by IRS policy.
Initially, the taxpayer asserted in its pretrial memorandum petition that the officer contributed to its inability to stay current on its employment tax deposit obligations by refusing to consider its “financial quagmire.” But then, it dropped this argument. Absent other reasons, the Tax Court upheld the determination that the full amount remains due.
Moral of the story: Don’t look at payment options as a “get out of jail free” card you can play as needed. Have your clients continue to observe all the technicalities in the law to obtain the optimal tax relief.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...