Payroll Tax Lien
The IRS has numerous methods for keeping taxpayers in the system. If these efforts fail, business taxpayers can face the very ugly situation of a payroll tax lien.
Payroll Tax Lien
Payroll tax liens are some of the worst liens pursued by the IRS. Ostensibly, the IRS views the failure to deposit payroll taxes as a form of theft. The reason for this is a percentage of the payroll tax deposit is actually taken out of the paychecks of employees. As a business owner, you are a trustee collecting and depositing these amounts with the IRS. When you fail to make the deposit, the IRS brings all of its guns to bear upon you and your business.
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A payroll tax lien is particularly ugly because the tax code authorizes the IRS to assess a 100 percent penalty against responsible parties. This 100 percent penalty is determined by assessing the amount of tax due and doubling it. For example, if your business fails to make a payroll tax deposit of $10,000 and the IRS penalizes you, the penalty will be $10,000 or 100 percent of the missing deposit. As you can see, the 100 percent penalty is an absolute killer and it behooves you to pay the payroll tax if at all possible.
Payroll tax liens become even more painful when one begins to understand who the IRS can go after. If you think the penalty can only be brought against the business, you are incorrect. Instead, the payroll tax lien can be asserted against any person in the business who meets the following tests:
1. Had a duty to account for the payroll taxes;
2. Collected payroll taxes; and
3. Previously deposited payroll taxes.
Any person who meets these three tests can be personally pursued by the IRS for all amounts due. This is true even if the person is not an owner or officer of the business. The specific test can vary a bit by the type of business entity you have, but it is still a nightmare situation. Put another way, such people face an unmitigated disaster if the IRS comes calling.
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If the IRS files a payroll tax lien against you or your business, you absolutely must act. A payroll tax lien is a huge problem and the IRS will move to freeze your bank accounts, shut down the business and liquidate the business.
While there are many tax situations that you can handle on your own, a payroll tax lien is not one. Retaining a tax professional is an absolute must to protect your rights. Remember, the IRS does not play nice with payroll tax liens. IRS agents are going to come fast and hard, most likely including a raid of the business.