Elden Sodowsky has been assisting clients with IRS problems and business setup and advising for over 35 years. He has the necessary expertise and experience to resolve your issues. If you have questions regarding a business matter or tax issue, Fairfax, Virginia business lawyer Elden Sodowsky has the answers you are looking for.
IRS Problem Resolution
Maybe. If the limited liability company is properly set-up and operated properly so that business assets are not commingled with personal assets, the members of the llc are usually not personally liable for the debts of the llc. However, if the llc does not make the required payroll tax deposits, the IRS can come after all the responsible persons for the trust fund portion of the payroll tax deposits.
The Trust Fund portion of payroll taxes is the money that the employer withholds from the employee’s paycheck for federal income tax withholding and the employee’s share of FICA and Medicare (also referred to as the social security tax) tax payment. The Trust Fund portion does not include the employer’s matching portion of the FICA and Medicare payment.
If you cannot pay all your taxes immediately, pay as much as you can now because by paying now, you will reduce the amount of interest and penalty you will owe. The IRS would like you to call, write or come see them to discuss your situation. If you contact the IRS, they will likely ask you to complete a Collection Information Statement and provide documentation to substantiate the information you provide. A Collection Information Statement (Form 433-F, Collection Information Statement (ACS), Form 433-A,Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 433-B, Collection Information Statement for Businesses) helps the IRS compare your monthly income with your monthly expenses to determine the amount you can pay. The Collection Information Statement also serves as a roadmap to your assets that the IRS will use when it initiates collection actions against you if you do not pay.
You may be eligible for one of several alternatives, depending on your particular financial situation.
- You may be able to make monthly payments through an installment agreement. You may be able to set up a direct debit from your financial institution or a payroll deduction from your wages or salary.
- You may qualify for a temporary delay if your case is considered a hardship.
- In some cases, you may qualify for an Offer in Compromise.
Installment agreements allow the payment of your debt in smaller, more manageable amounts. Installment agreements generally require equal monthly payments that will result in full payment of the tax you owe within the time left in the 10-year period during which the IRS can collect the tax from you. If you cannot pay your tax in full by the end of the collection period, but can pay some of the tax you owe, you may qualify for a partial payment installment agreement.
For all installment agreements, the amount of your installment payment will be based on the amount you owe and your ability to pay that amount within the time left in the 10-year period. To be eligible for an installment agreement, you must file all required returns. If you are an employer, you must be current with federal tax deposits.
When you arrange for an installment agreement, it may be to your advantage to pay by electronic funds withdrawal from your financial institution or payroll deduction from your wages. These two types of payment arrangements will help you avoid termination of your installment agreement by ensuring timely payments and preventing enforced collection action. These types of agreements will also reduce the burden of having to mail the payments and will save you postage.
You will have to pay a user fee to set up your installment agreement. The fee is $52 for direct debit installment agreements, where payments are deducted directly from your financial institution, and $120 for other agreements. Taxpayers with income at or below established levels, based on the Department of Health and Human Services Poverty Guidelines, may apply and be qualified to pay a reduced user fee of $43 for establishing new agreements, including direct debit installment agreements.
If you can convince the IRS that you cannot pay any of your tax debt, the IRS may temporarily delay collection until your financial condition improves. You should know that if the IRS does delay collecting from you, your debt will increase because penalties and interest are charged until you pay the full amount. During a temporary delay, the IRS will routinely review your ability to pay. The IRS may also file a Notice of Federal Tax Lien to protect the government’s interest in your assets.
The Offer In Compromise (OIC) program is an option for those taxpayers who are unable to pay their tax account in a lump sum or through an installment agreement and have exhausted their search for other payment arrangements. The IRS may accept an OIC to settle unpaid tax accounts for less than the full amount of the balance due. This applies to all taxes, including any interest, penalties, or additional amounts arising under the Internal Revenue laws.
The IRS may legally compromise a tax liability for one of the following reasons:
- Doubt as to liability – there is doubt as to whether or not the assessed tax is correct,
- Doubt as to collectability – there is doubt that you could ever pay the full amount of the tax owed. In these cases, the total amount you owe must be greater than the sum of your assets and future income, or
- Promote effective tax administration – there is no doubt that the assessed tax is correct and no doubt that the amount owed could be collected, but you have an economic hardship or other special circumstances which may allow the IRS to accept less than the total balance due.
There are three types of OIC payment terms that the IRS and the taxpayer may agree to:
- Lump Sum Cash – must be paid within 5 or fewer installments from notice of acceptance.
- Short Term Periodic Payment – must be paid within 24 months (2 years) from the date the IRS receives the OIC.
- Deferred Periodic Payment – must be paid within 25 months or longer, but within the time remaining on the 10-year period for collection.
An OIC submitted as a lump sum cash offer, must include the $186 application fee and a nonrefundable payment of 20 percent of the offered amount, with the balance to be paid in no more than 5 installments from the notice of acceptance.
An OIC submitted as a periodic payment offer (short term or deferred) must include the $186 application fee and a nonrefundable initial proposed periodic payment with the offer. The remaining proposed periodic payments must continue to be made while the offer is being evaluated.
Taxpayers with income at or below established levels, based on the Department of Health and Human Services Poverty Guidelines, are not required to submit the $150 application fee, 20% of the amount of a lump sum cash offer, the first installment of a periodic payment offer, or subsequent installment payments for a periodic payment offer while that offer is being evaluated.
A levy is a legal seizure of your property to satisfy a tax debt. It is different from a lien, which is a claim used as security for the tax debt.
If you do not pay your taxes (or make arrangements to settle your debt), the IRS can:
- Seize and sell property that you hold (such as your car, boat, or house), or
- Seize property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions).
The IRS usually does a levy only when the following three conditions have occurred:
- It has assessed the tax and sent you a Notice and Demand for Payment,
- You neglected or refused to pay the tax, and
- It sent you a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” at least 30 days before the levy. The IRS usually sends this notice to your last known address by certified mail, return receipt requested. However, it may give this notice to you in person, or leave it at your home or your usual place of business.
By law, some property cannot be levied or seized. The IRS may not levy any of your property unless they have determined there to be net proceeds to apply to the liability. In addition, it may not levy your property on the day you attend a collection interview in response to a summons.
Other items the IRS may not levy include:
- School books and certain clothing;
- Fuel, provisions, furniture, and personal effects for a household totaling $9,200;*
- Books and tools you use in your trade, business, or profession, totaling $4,600;*
- Unemployment benefits;
- Undelivered mail;
- Certain annuity and pension benefits;
- Certain service-connected disability payments;
- Workers compensation;
- Salary, wages, or income included in a judgment for court-ordered child support payments;
- Certain public assistance payments; or
- A minimum weekly exemption for wages, salary, and other income.
* These amounts are indexed annually for inflation (these amounts are for calendar year 2017.)
For more information, call us at 703.436.1176 to schedule a consultation or order one of our FREE consumer guides!
Liens give the IRS a legal claim to your property as security for payment of your tax debt. The federal tax lien arises when:
- The IRS assess the liability,
- The IRS sends you a Notice and Demand for Payment, and
- You neglect or refuse to fully pay the debt within 10 days after we notify you about it.
The IRS then may file a Notice of Federal Tax Lien in the public records. By filing a Notice of Federal Tax Lien, your creditors are publicly notified that the IRS has a claim against all your property, including property you acquire after the lien was filed. The lien attaches to all your property (such as your house or car) and to all your rights to property (such as the accounts receivable of your business).
Once a lien is filed, your credit rating may be harmed. A lien may affect your ability to get a loan, buy a house or a car, get a new credit card, or sign a lease.
To encourage prompt payment of withheld employment taxes and collected excise taxes, Congress passed a law that provides for the Trust Fund Recovery Penalty (These taxes are called Trust Fund taxes because the employer actually holds the employee’s withheld taxes or the collected excise taxes in trust until the employer makes a federal tax deposit in the amount of the withheld or collected taxes).
If the IRS plans to assess you for the trust fund recovery penalty, they will send you a letter stating that you are a responsible person. You have 10 days after they send their letter to tell them why you disagree and 60 days after they send their letter to appeal their proposed assessment to the IRS Office of Appeals. If you do not respond to their letter, they will assess the penalty against you and send you a Notice and Demand for Payment. The IRS may assess this penalty against a responsible person whether or not the company is still in business.
A responsible person is an individual or group of people (there may be more than on responsible person) who had the duty to perform and the power to direct the collection and payment of trust fund taxes. A responsibly person may be:
- an officer or an employee of a corporation,
- a member or employee of a partnership,
- a corporate director or shareholder,
- a member of a board of directors of a nonprofit organization, or
- another person with authority and power to direct the disbursement of funds.
The IRS may assess the penalty against anyone:
- who is responsible for collecting and paying withheld income and employment taxes, or for paying collected excise taxes, and
- who willfully fails to collect and pay them.
Willfulness exists if the responsible person:
- knew about the unpaid taxes, and
- used the withheld or collected funds to keep the business going, allowed available funds to be paid to other creditors other than the IRS, or otherwise failed to pay over the taxes to the IRS.
In addition to these civil penalties and remedies, there are possible criminal ones as well.
The amount of the penalty is equal to the unpaid balance of the trust fund taxes. The penalty is computed based on:
- the unpaid income taxes that should have been withheld, or were withheld but not paid over, plus
- the employee’s portion of the Social Security/Medicare taxes that should have been withheld, or were withheld buy not paid over.
For collected excise taxes, the penalty is based on the unpaid amount of collected excise taxes.
Once the IRS asserts the penalty, they may take collection action against your personal assets if you do not pay the penalty after being sent a Notice of Tax Due and Demand for Payment. For instance, they may file a Notice of Federal Tax Lien against you if you are a responsible person.
When you file your tax return, the IRS checks to see if the math is accurate and if you have paid the correct amount. If you have not paid all you owe, the IRS sends a bill called a Notice of Tax Due and Demand for Payment. The bill includes the taxes plus interest and penalties. It is in your best interest to pay your tax liability in full to minimize the amount of interest and penalty charged. You may pay your taxes by credit card, electronic funds transfer, check, money order, or cash.
Business Setup and Advising
A limited liability company (llc) is a separate legal entity from you personally. In order for the llc to provide protection to you and your personal assets, youmust first set-up the llc properly and follow all formalities. You should consult with a qualified business lawyer to advise you on the proper steps for doing this. In addition, you must keep the llc’s assets, liabilities, income and expenses separate from your personal assets, liabilities, income and expenses. The llc won’t protect you from your own personal acts of negligence or other personal actions. But, it can protect you from claims arising from the business conducted by the llc. A lot people woh have investment properties, such as rental homes, set-up an llc to own each separate property so the assets are “compartmentalized.”
Make sure you take ALL the steps necessary to get your business properly set-up Don’t miss a critical piece and wind up with problems down the road. I can answer the questions you might be hesitant to ask anyone else. I can help you find peace of mind and get you started right or get you back on the right track.
Call my office today at 703.436.1176 to schedule a consultation.
The Sodowsky Law Firm serves all of Virginia and in particular the following Northern Virginia (NOVA) counties, cities, and towns: Fairfax County, Loudoun County, Prince William County, ArlingtonCounty, Fauquier County, Stafford County, Fairfax, Chantilly, Centreville, Herndon, Reston, Vienna, Manassas, Manassas Park, Leesburg, Alexandria, Falls Church, Ashburn, South Riding, Sterling, Dale City, Woodbridge, Warrenton, Fredericksburg, and Stafford.