The IRS takes payroll taxes very seriously. Having delinquent payroll taxes is a sure way to get the IRS to be knocking on your door!  You will surely be hit with huge penalties and if that were not bad enough, the IRS considers failure to pay payroll taxes a federal crime.  Simply put, delinquent payroll taxes could cost you thousands of dollars and land you in a federal prison.

The IRS penalties for delinquent payroll taxes are significant enough to literally cause you to close the doors of your company forever.  However, with the current economic crisis more and more companies are using the money collected from their employees that should go to payroll taxes to pay their operating expenses.  This is not only illegal but indicates serious problems to come!

There are options if you currently have delinquent payroll taxes. However they are limited and difficult.

• Negotiate an installment plan with the IRS:  This is difficult because the IRS really isn’t concerned about saving your business, they just want their money.
• Offer in Compromise: This is a mutually agreed upon lower sum to be paid to the IRS. However, if the IRS determines that your business is worth more than the tax debt owed, they will often reject an Offer in Compromise.
• Setting up Cascading Penalties: this is a very expensive option, but one that may save your business.  Say for example you missed a single payroll tax deposit of $10,000 but made all other deposits in full and on time.  The IRS may apply the next deposit to the missed one, and continue this future application until the debt is paid.  However, be aware that the penalties continue as well. Using the example of a missed $10,000 deposit, the IRS may assess a $1,000 penalty but this penalty will apply to each future deposit until the original debt is paid in full.  So in essence you end up paying a $7,000 penalty instead of the original $1,000 over the next 7 deposits for example.

One other issue you should be aware of, the IRS can hold individuals responsible for the delinquent payroll taxes.  In other words, it is not just the owner or President of the company that will be held accountable.  The law states that anyone with decision making authority regarding the payment of company expenses can be held liable.

As you can see, having delinquent payroll taxes can destroy not only your company, but many individuals associated with your company as well.  It is imperative that you contact a tax professional the moment you realize that you will not be able to meet your payroll tax burden.  Hesitation and procrastination could mean not only the end of your business, but even worse, the end of your freedom!

Remember failure to pay your payroll taxes is a federal crime and not only can be, but very often is prosecuted to the fullest extent of the law.  Contacting a tax professional to go over your options makes much more sense than doing nothing and ending up in prison.