Good morning, this is Kelly Coughlin, CEO of EveryDayCPA.com, hope everybody is doing well.
You know, dealing with the IRS for a business or a personal tax resolution can be a challenging endeavor. Today we are going to talk about Business Tax Resolution. We are going to focus on tax liability resolution, that is, resolution of a business tax liability after the IRS has notified you of an amount due.
With that, I have on the line, William D. McConnaughy. He is a former IRS Revenue Agent (beware!), has a Master’s in taxation, and is a CPA. So, he has got insider knowledge about how the IRS personnel think, or don’t think, what pressures they are under and how to work with them successfully.
Kelly: So, I think, Bill, you are on the line. Let’s talk about business liability, tax liability. I like things in threes and fives so let’s talk about the top five tax liability categories that you end up working on for businesses or the events that created it. Is it, you know, the long term capital gains and you get this big tax liability? Is it an audit? I assume that employment tax withholding for compensation, that’s one of those things that you can’t do too much with, I would imagine, because that’s one of the most egregious events, right, that’s created but give me like top five things that you work on like for businesses.
William: For businesses, I am not sure if there are five but I’ll list a couple. First and foremost, far and away, the number one problem is employment taxes, payroll taxes, where the business owner or the business doesn’t turn over withheld payroll taxes to the IRS like they are supposed to, which comes up frequently. And the reason again is that, there is usually a good reason where the business need that money to take care of unexpected things that come up either within the business or the business owner personally. It is unpaid payroll taxes that the company withholds from the employees’ wages, they are supposed to turn them over to the government and they don’t, for various reasons. That’s number one. Far and away, number two would be the income taxes, company income taxes, but by and large, it’s almost always the payroll taxes that’s the troublesome thing, and the reason being is because it is so easy. I mean, the company is supposed to turn this over every three months because there is a quarterly filing requirement. And it’s very easy because there is nobody there to stop the company or the company owner from just saying to themselves, you know, I need this money right now for other purposes, and that’s what they do with it. So, that’s it, I wouldn’t say there is five but there is certainly the payroll taxes and the income taxes, but payroll, far and away is the bigger problem of the two.
Kelly: Okay, and on the payroll side let’s focus on that one then, many, many companies outsource payroll to like Quick Books, ADP, you know, a handful of companies that do payroll processing, I know, I am the CEO of a company. We didn’t see the payroll taxes, we outsourced the entire service. I never wanted to see that money, just make sure it gets deposited. Then it got me concerned, I think there are a couple of cases I had read about where even if you are using an outside service you better make sure that that outside service, settles withholdings unto the IRS or they are going to come back and look at you. Is that a fair statement?
William: That’s absolutely fair, with the payroll services, and as you are mentioning, there are large ones that are nation-wide, and they do a pretty good job of it. I use Paychex, one of two of the largest, they do a pretty good job of it but even they can make honest mistakes so it’s still your responsibility to make sure that those payroll taxes are going in like they are supposed to. And then there is smaller payroll processing companies that are not so stable or not so honest where there have been cases where some of the smaller companies will embezzle your payroll taxes and you are thinking you are paying the IRS and what you are actually paying is somebody who plans on running off with your money. That can happen. That does happen. So, yeah, as you were saying, it’s incumbent upon the business owner to make sure those taxes are deposited with the IRS because you, the business owner, you are responsible whether you farm it out to somebody else or not that’s not the point with the IRS. The point with them is that you are the person who is responsible for that, and if it doesn’t happen the IRS is going to make you personally responsible for that. They, the IRS, they will personally assess half of the payroll tax that was not paid by the company against you personally. So, that’s how that works and it’s, like I said before, it’s one of the biggest problems out there and it brings me a lot of business because this comes up all the time.
Kelly: So, that personal liability, the corporate vale, so to speak, payroll taxes pierce that for all officers, CEO, CFO, how deep does it go?
William: Anybody who has any sort of responsibility for that for that to happen? And it can go deeper, I have seen cases where the IRS will even go down to the bookkeeper or accountant who is not even an owner of the business, they just work there but because they had their hands on the check book they were supposed to write the checks, they didn’t write the checks the IRS can go all the way down on the people who are not even owners, people who just work there.
Kelly: Yes, because I remember when after I had read this, I was CEO of the company and I am the CPA as well, so I am kind of, you know, sensitive to that kind of stuff and so I remember, I think we were actually using Paychex at the time, and I remember it caused me to do further due diligence on paychecks to make sure that they were in fact sending those funds along, and I think it was kind of a challenge to get that information to prove that the deposits had actually been made. Is there any ideas that you have on how one can get that?
William: Oh yeah, you would have to contact Paychex and get proof of that. I have seen on bank statements where they are charging me for the deposit. They, Paychex, they take the money out of my bank account so that’s how I know it’s been done.
Kelly: Oh, you don’t know that it is going to the treasury though?
William: Well, I will know. You have got a point there actually. I will know once the IRS sends me a notice saying that I have unpaid taxes and if that ever comes in I would say that should not be happening.
Kelly: Yeah, you see, that was my problem, I certainly saw them withhold it but were they depositing it into another account or the treasuries account? And, they never could, as I recall, and it has been years, but as I recall it was a challenge to get to verify that. But your point is that it needs to be verified because that’s your number one, whether it’s accidental or intentional, these employment tax liability, the failures to make those deposits is the number one driver of your demand for your business model, correct?
William: Right. That’s the number one thing from businesses that bring me tax liability cases where these payroll taxes don’t get paid like they are supposed to. Also to follow up on your question about how can you know that they are making those deposits, what you can do is pull up account transcripts from the IRS online for any particular quarter, and you will get a printout to show what happen there whether or not the payroll taxes were deposited. So, you can verify that, that’s not actually that hard to do. If you go online at the irs.gov, pull up your account transcript for any particular quarter or a year then you will see what is there.
Kelly: That’s probably not a bad idea to do then, is it?
William: Yes, if you want to stay on top of it and if you have any reason to believe that it’s not happening like it should that would be the best way to verify it without having to take anybody else’s word for it.
Kelly: Yeah, at least have a bookkeeper or controller or somebody just once a quarter, or once every six months or at least once a year go in and do that. So, that’s what drives your business model.
Kelly: Well, that covers what I had. Anything else you wanted to add to this?
William: In closing, I can’t overemphasize the importance of those payroll taxes again, that is such a big deal on these business taxes that when the IRS, again, goes and asses that the tax is against the owner of the business or the bookkeeper that works there the so called trust fund recovery penalty, that’s what they call it, that is a real big deal. The IRS takes those payroll taxes very seriously, and the way they look at it, they don’t look at it as an unpaid tax liability. The IRS people call that theft because what you have done as a business owner or somebody that works there and didn’t turn those payroll taxes over. Those monies, those taxes, that was not your money that was your employees’ money. That was money that’s out of your employees’ paycheck, that never belonged to you and you are put in a position of trust to turn it over to the government and if you don’t do it the way the IRS sees it, what you have done is tantamount to theft. You have taken somebody else’s money that you are supposed to hand over to the government and you didn’t do it. So, the way they look at it, they call it theft, very thinly disguised theft. And that’s why they come down real hard on unpaid payroll tax liability. So, I cannot re-emphasize just how important that is. If you are in that situation for whatever reason you will be well advised to get professional representation, because the IRS is going to come down on you like you wouldn’t believe about that.
Kelly: Now, does that apply to if the employer is withholding 401K contributions? Would they treat that the same way to make sure that the funds are being deposited into their, you know, 401K plan?
William: That’s not any of the IRS’s business where that goes to 401K plan, that’s another matter. The IRS doesn’t monitor all of that, they are looking for the payroll taxes, not the 401K contributions.
Kelly: Okay. So the department of labor, I suppose, would, say, be on top of that if for some reason the employer was withholding the wages for a 401K contribution and it wasn’t going into the 401K plan, and you are saying the IRS wouldn’t be looking at that but another regulator like DOL probably would. Is that right?
William: That’s right, yeah, that’s not for the IRS.
Kelly: Okay. On the issue resolution since it is such a kind of cut and dry fact and circumstance, how can you get a favorable resolution on this? If it is they stole $10,000 from their employees, how do you add value to that? Just reduction in penalty?
William: I am not sure I understand the question there Kelly, rephrase that, what do you mean?
Kelly: So the question is, if the equivalent to theft of employees $10,000, the employer doesn’t make the contribution so the IRS says, hey, this is de facto theft, let’s say it’s $10,000, how do you add value to that? Because if they are just saying, hey, this is theft, how does McConnaughy comes in and says, well, let’s settle on $5,000?
William: That would depend on the company’s ability to repay those taxes. I get settlements all the time on unpaid payroll taxes in these cases, even though they are quite serious. I get settlements all the time, there is a misunderstanding out in the general public that you can’t settle payroll taxes but that would be untrue, I get settlements frequently on unpaid payroll taxes, even though the IRS profoundly frowns on those unpaid payroll taxes. They can be settled if you can prove to the IRS that the business doesn’t have the means to pay those off, ever, then yes you can get reduced settlements even on payroll taxes, both at the company level and at the responsible person’s level. I do it, like I said, frequently, it’s not at all the time, it’s not every day but it is frequently. That’s at least every month I get settlements on those kind of taxes despite the misunderstanding in the public that you can’t settle those. Those kinds of taxes cannot be discharged in bankruptcy which is where I think the misunderstanding comes in, because you can’t discharge those kinds of taxes in a bankruptcy filing they can’t be settled, but that’s not true, they can be settled with the kind of work that I do.
Kelly: Yeah, I guess I didn’t realize that, I kind of assume that the payroll tax part was there not much room for negotiation there.
William: No, no, no, that would be untrue, I get settlements, frequently on those taxes. They can be settled.
Kelly: That’s terrific.
William: It can’t be discharged in a bankruptcy that’s where a lot of people get the misunderstanding.
Kelly: Yeah. Let’s talk about how people can contact you. I think there is no geographical limitation and where you work. I mean if it’s the state tax issues in California, I suppose, maybe Arizona or is your sweet spot but in terms of Federal Tax issue you can work with anybody anywhere, correct?
William: That’s correct. I have clients literally world-wide, people that are overseas.
Kelly: How does one get a hold of you?
William: The best way is either call because I have a toll-free number, it is 888-2251272, toll-free. You can call me on my dime, 888-2251272 or they can go through my website taxhelp.pro, taxhelp.pro, and you can get a hold of me through the website, either quick to call, email we have chat on most of the time, any of those three ways, call, chat, email, whatever works for you.
Kelly: Now, do people normally start with you or they start with one of your assistants to kind of do some fact-finding first, how does the process begin?
William: The first point of contact is usually…I have a brother that works with me in the business, his name is Donald, he does the initial screening. So, usually the first contact will be with him to determine whether or not you really have a problem that I can help you out with, but then immediately after that it comes directly to me. I am the man, I am the point of contact after that. I will be personally working on your case, it will not be shoved down to somebody else with less experience.
Kelly: So, the McConnaughy Brothers, the McConnaughy mafia doing tax work for you. Alright, so say your website again.
William: It’s taxhelp.pro
Kelly: Taxhelp.pro, okay. Alright, that’s terrific. Do you want to finish with a quote or a funny historical event or are we done?
William: Let’s see…I think we are done for now. This has been a great call and I really enjoyed it. Any other time you want to speak with me about tax stuff please let me know I will be glad to get on the line with you.
Kelly: Well, let’s do a personal one, a personal tax situation because those are different, because, obviously, you don’t have the wages thing so at least the top critical event would be different. But, we will set that up and try to get that done before the end of the year as people get into the tax season. That would be great.
William: Alright, very good. I am looking forward to it.
Kelly: Bill I enjoyed it, take care of yourself.
William: Okay, goodbye Kelly.
Kelly: Thanks, bye.