**This article is part of a larger article series titled, The 941 Payroll Tax Resolution Process. There is a specific sequential order to this series, so we highly recommend that you start at the beginning.
PREVIOUS ARTICLE: The Tax Resolution Cycle (Where are you?)
Now that you know more about the traditional cycle of 941 payroll taxes, you should know where you are in the cycle. Identifying where you are in the cycle will help you ultimately know how much resolution needs to be done, and for what periods.
Next, let’s talk about the tax resolution case process. While every tax resolution case is unique, each case typically takes on a similar process:
- Obtain & Analyze IRS transcripts
- Prepare a Financial Package
- Get Current & Compliant
- Negotiate Best Resolution Option
- Trust Fund Recovery Penalty Interview
- Penalty Abatement
Obtain & Analyze IRS Transcripts
After you have received an assessment, bill, notice, or a call from the IRS, you need to first determine what the status is of your account. This can be done by obtaining your account IRS transcripts and analyzing it to ensure the amount the IRS is banging down your door for, is correct.
This step will also help you:
- Determine complete and accurate picture of collections status and actions against you
- Verify correct tax debt amounts
- Determine the exact tax periods being affected and what tax returns will need to be prepared and submitted
- Get an accurate picture on resolution options available to you
- Identify opportunities to file with Appeals, if applicable
- Get an accurate picture of the full amount owed, separated out by tax, penalties, and interest
- Learn ways to prevent accumulating more tax liabilities
To get your tax account transcripts, take one of the actions below.
Order By Phone
You can order your transcripts by phone and they will be mailed to you. Call: 1-800-908-9946. Be aware that calling during peak tax seasons will create holds times up to 2-3 hours.
Order By Mail
Lastly, you can order transcripts by mail by completing and sending in Form 4506-T Request for Transcript of Tax Return. You can specify the year(s) or period(s) you need to get copies from. If you aren’t in a rush, this option is great.
**COVID-19 UPDATE (April 2020): The IRS has stopped processing transcript requests by mail until further notice.
Prepare a Financial Package
Next, you need to prepare a financial package on your business. All tax resolution options require that a financial analysis be completed to determine resolution options.
This means completing Form 433-A or 433-B.
Form 433-A will be used if you have a Trust Fund Recovery Penalty assessment made against you and you need to go through the tax resolution process individually.
Form 433-B is used for the business. It is a Collection Information Statement based on business property and assets, income, and ongoing business expenses.
What Should the Financial Package Look Like?
You’ll need to complete 433-B in its entirety. It will ask for business information, business personnel and contacts, additional financial information (like bankruptcy, lawsuits, etc.), business assets and liability information, real property, vehicles that were leased or purchased, business equipment and intangible assets, and monthly income and expenses.
In lieu of Section 5 Monthly Income/Expenses Statement for Business, we recommend providing a full balance sheet and P&L. This is allowed by the IRS and will make you look like you have your crap together. It will provide a specific perception about your business to the Revenue Officer that will lead to a better resolution outcome.
Get Current & Compliant
In this step, you need to get your business current and compliant.
In the 941 filing world, getting compliant with filing requirements means that you need to file every single 941 that should have been filed. This can be extensive depending on how long this has been going on, but you must do it in order to get into resolution.
Current means that you start today to never miss another trust fund tax payment. Pay the most recent federal tax deposit payment amount for the most recent payroll. If you aren’t using a payroll service already, this is where I recommend that you do so, to force yourself into a situation where they will pay it for you. By doing this, you’ll stop pyramiding liabilities.
The reason why you need to get current and compliant is because the IRS will not allow a taxpayer to enter a resolution option without being in that status. Further, they will revoke a resolution agreement if after you get into resolution, you stop filing returns and making federal tax deposits.
Negotiate Best Resolution Option
The entire tax resolution process is fairly logical:
- You obtain and analyze IRS transcripts so that you know all the details regarding your account. Without this knowledge, you don’t know how to fix it.
- Next you prepare a financial package where you identify which resolution options you will qualify.
- Then you get current and compliant to prove to the IRS that you are becoming a “good little taxpayer” and worthy of having a little grace allowed from past wrong doings.
Negotiating a resolution option is the next logical step. This is where you will provide your financial package, details that you are current and compliant, and demonstrating a lack of financial alternatives (such as by loan and other credit denial letters).
Additionally, the IRS will want to review proof of business assets, income, and expenses and you will provide all of that detail.
Then you will negotiate the best resolution option and the IRS will grant it because of the thorough work you have done and information you have provided to them.
Trust Fund Recovery Penalty Interview
After you have negotiated your tax resolution option, the next step is the Trust Fund Recovery Penalty Interview. Most 941 cases will include this step. The IRS will want someone to be on the hook for this penalty. Accountability for the Trust Fund (employee portion of withheld social security, Medicare, and income taxes) is one of their highest enforcement priorities.
If this penalty is imposed upon you, the full weight of the IRS can pierce the corporate veil and touch you personally.
This part of the process will include an interview with a Revenue Officer and each person that might be liable. Liability for this penalty can come about if someone is both willful and responsible for not paying the Trust Fund taxes.
This interview is conducted in person or over the phone, by way of Form 4180. We would recommend going through the entire Form 4180 ahead of the call. Think of it as an interview prep. Go through the questions and make sure you have your answers down pat. In fact, fill out the form so you have the answers to share on the phone. It will keep your information on point and will prevent you from rambling.
Lastly, its time to talk about penalty abatement.
It’s important to note that penalties are set in stone and there is a priority order in which penalties are assessed. Internally at the IRS, most penalties are now calculated electronically without a manager having to sign off on those. The computer is assessing the penalties and not a human. Because of this, we always recommend doing your own calculation to make sure the penalties are accurate.
If the penalty amount is correct, then relief may be granted after tax accounts are deemed correct and currently compliant.
This means that if you want to challenge the tax liability, you need to do that before you are trying to get a penalty abatement; hence why this step is after the financial analysis and tax resolution steps. It’s the last thing that you do.
This portion of the process is done by way of Form 843, Claim for Refund and Request for Abatement. We always recommend writing your own letter so that you can provide additional details and information that will help create a better case and give you the ability to go above and beyond what Form 843 provides.
Now that we have reviewed the process of a typical tax resolution case, we’ll now review the financial analysis for a construction or trade contract business. Again, the financial package and analysis step is incredibly crucial for determining resolution options, make sure you review in detail next.