MBBP Tax Attorneys Assist Large MA Employer with Employment Tax Jeopardy Assessment and Remind All Employers and “Responsible Persons” of Their Liability For These Taxes.
Members of MBBP’s Tax Controversy & Litigation Practice recently negotiated a favorable settlement in a contentious federal employment tax case. The Service had proposed making a $1,000,000+ jeopardy employment tax assessment in a tax examination conducted as part of a major investigation of the client by the U.S. Attorney and the U.S. Citizenship and Immigration Service. The proposed jeopardy assessment (whereby the Service would make an immediate assessment without following the procedures required for an ordinary assessment, and then proceed to collect the tax as assessed without delay) threatened to upset the sale by the client of its operating assets to a buyer who intended to continue the business operations. MBBP successfully derailed the $1,000,000+ assessment and settled the matter for under $250,000 in tax and penalties. The sale was not affected.
The case once again serves as a reminder of the importance of understanding and properly complying with employment tax requirements.
Employers must solicit information from all new employees regarding their tax status and eligibility for withholding exemptions. Generally, an employer can rely on the representations made by an employee on Form W-4. However, under certain circumstances, an employer must request additional information from the employee or withhold at maximum rates.
Penalties apply if, for example, required deposits are not made on time or deposits are less than the required amount. The penalty is equal to the amount which should have been deposited. Importantly, not only is the company liable for the penalty, but the penalty may also be imposed on all persons who are determined by the Service to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in failing to do so. A responsible person may include anyone who signs checks for the business or otherwise has authority to direct the spending of business funds. Responsible persons may include an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship.