941 Penalities

[Donanita]

Client got behind with 941 payments.Had a meeting with IRS agent in 04 and set up payment plan. Agent told client to make their regular 941 payments monthly and not be late.Client has been making deposit for current payroll on time every month. I started doing their payroll in 05 and didn't have any information on their 2003 & 2004 info.Most was turned over to the agent.(I know my fault for not getting info. but water under the bridge at this point) Problem is that now the IRS is saying the lookback on the tax liability is around $56,000 which would make them a semiweekly depositor for 2005 not a monthly.
Client said IRS agent told them to stay monthly at the audit?? Now they have received a letter for the first quarter and wanting to impose penalities for late deposits.They haven't received anything about the 2nd & 3rd quarters yet but I'm sure they will. Is there any way they can request that the penalities be abated or will the now have to pay.Client is trying to keep business afloat but this may put them in a bind. They are already paying on a $60,000 back 941 which includes interest & penalties.
Any suggestion will be appreciated.

[ED SMITH]

941 Penalties

You might try using form 843 to request an abatement of the assessed penalties. Since you have not been assessed yet for the other periods yet, you might try talking to the IRS before the assessments get into the system.
Otherwise, I hope your E&O is paid up. As you said it is your fault and your client is paying you as a professional to avoid having additional penalties.
I had a bookkeeping service for a retail business, before I got involved with taxes, and the made a couple of late payments. Guess who paid the penalties?
Ed

[S T]

Form 941

Re: Ed's reply,
it appears that Donanita was not involved in the 2003/2004 non payment, she didn't get involved until 2005

I started doing their payroll in 05 and didn't have any information on their 2003 & 2004 info.Most was turned over to the agent.(I know my fault for not getting info but water under the bridge at this point)

I don't know for sure if the auditor has the governing authority to actually determine when the payroll taxes are deposited, i.e. weekly, semi weekly, semi monthly, monthly. If you look at Circular E, you will find how they impose the lookback rule to determine payroll deposits. $60,000 back payroll taxes is pretty "Big".

Hopefully you are an EA or CPA. I would have the client sign a power of attorney form 2848, for the 2003, 2004, 2005 and possibly 2006 payroll years. Either submit through the hotline or fax in to the CAF #, then call and explain the circumstances and request penalty abatement for 2005, if they have been making their deposits on time according to what the auditor advised them (I'm sure the client does not have what the auditor told them in writing).

The problem that you are facing is that IRS sees the taxpayer as a "thief" or "embezzler" as the payroll taxes are outstanding for prior years, and they do not take kindly to that and can institute criminal charges for it. It is in the client's best interest to immediately set up some type of reasonable payment plan and then make sure that the current payroll is paid on time.

You might want to look into signing them up on EFTPS. Then on each current payroll period they immediately pay the current payroll taxes due (no float) and budget in the back payments monthly on the agreed payment plan.

The taxpayer is really at the "mercy" of IRS on this one.

Whatever you do as a payroll servicing agent, do not sign any documents or checks! Make the taxpayer responsible for all payroll issues Federal and State.

Which brings up another question, are they also behind in their State payments?

Good Luck!

Sandy

[Donanita]

Payments

Yes,they are current on all their state payments and have been making the monthly deposits on time.Agent has them set up on a payment plan for the back taxes which they are paying.In reading QFB page L-2 under payroll deposits deadlines it says that each Nov the IRS notifies the employer which kind of a depositor they are by the lookback period.They never got any notification so was hoping this would help or is this something that the IRS can or doesn't have to do.

[smulekar]

Try using www.payrollpenalty.com. They are supposed to be good at getting the penalties & interest lowered considerably.