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IRS abates penalties

Monday, April 4th, 2011

In a payroll tax case we have been working on for over a year, the IRS has agreed to abate penalties, saving the taxpayer over $200,000. This is a very unusual decision for the IRS, which considers non-payment of payroll taxes to be an unauthorized loan of government funds.

Employers are required to withhold income tax, Social Security tax, and Medicare tax from their workers’ wages and deposit these funds regularly. At the same time, employers pay their share of Social Security and Medicare  taxes. Penalties mount rapidly if an employer falls behind on these deposits.

The circumstances of this taxpayer’s case were unique. Their office manager/bookkeeper had let the company get behind on their payroll tax deposits, but she had told the owners that everything was fine. She had gained unauthorized access to the company’s post office box so she could intercept the IRS notices before the owners saw them. Her ruse unraveled when she was absent one day. The owners received one of the notices in the mail and called us.

Our investigation revealed how serious the situation was, with a delinquent tax liability in the mid-six figures, plus penalties and interest. The owners amassed enough funds to get the back taxes paid. We organized the documentation, interviewed the owners, and fashioned a compelling narrative describing the course of events that led to the late deposits. Through a series of letters, conversations, and meetings, we were able to persuade the IRS to abate the penalties. If the decision had gone the other way, the burden of paying the penalties on top of the back taxes probably would have put the company out of business.

We consider this a big win against the odds for our client. Not all of our engagements with the tax authorities end this well, but this is one example in which our willingness to stand toe-to-toe with the IRS on behalf of the taxpayer turned a potentially catastrophic situation into a more manageable one. As a result, the owners can now turn their focus back to managing their company through the recession.

Do you have an IRS story you’d like to share? How can we advocate for you?

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Tags: CPA Knoxville, internal controls, IRS, payroll, small business, tax, tax audit, withholding, workplace fraud

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800 S. Gay Street, Suite 1919 Knoxville, TN 37929

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