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Writer's picturejameshaque
Nov 6, 20201 min read

IRS Payroll Tax Initiative

Updated: Nov 24, 2020

The IRS has always contacted employers after one or more employment tax returns were filed and the full obligations were not paid. Under the recently announced Early Interaction Initiative, the IRS will contact employers (via USPS, automated phone messages, even a visit from a revenue officer) much earlier to more quickly identify those who are falling behind, to bring them into compliance.

Under the old system, unpaid taxes plus interest were out of control by the time the IRS contacted employers. Now, the IRS monitors deposit patterns for employers whose payments are late or decline over time. The identified employers receive a reminder letter or an IRS automated phone message offering information and assistance. An IRS revenue officer may visit some of these employers.

But there’s more.

The notices may be used in future employment-tax enforcement actions by the Department of Justice to prove that employers and responsible persons “willfully” failed to meet their responsibilities. To decide which employment tax cases to pursue, the government looks for willful conduct and repeat offenders who have multiple instances of failing to meet their obligations, a Justice Department official told an American Bar Association meeting. Failing to fulfill employment tax obligations after receiving an IRS contact under the program will be treated as evidence of willfulness, making the taxpayer a likely target for litigation. Employers and responsible persons—in some instances, this may be the bookkeeper—should be aware that these IRS notices are a significant issue.

If your company or client receives one of these letters or automated telephone calls, you should respond quickly and address the issues with the IRS.

Why risk falling behind?


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LLC Formations 

 

 

The limited liability company (LLC) is a business entity that offers limited liability protection and pass-through taxation. An LLC is a hybrid type of business structure. It contains elements of both a traditional partnership and a corporation. LLC can be managed by either by the members or by managers.

 

The members/owners in such a business enjoy a limited liability, similar to shareholders in a corporation. However, a tax return for the LLC must be completed. Any income or loss of the LLC as shown on this return will pass through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax.

 

As with a corporation, the LLC legally exists as a separate entity from its owners. Therefore, the owners cannot typically be held personally responsible for the debts and liabilities of the LLC.

 

Advantages of an LLC:

 

Members will share in potential profits and in the tax deduction with fewer financial risks

 

LLCs generally have no ownership restrictions

 

LLC offers a relatively flexible management structure.

 

An LLC does not require as much annual paperwork, or have as many formalities, as a corporation.

 

To create an LLC the proper formation documents, typically called the articles of incorporation or certificate of incorporation, must be filed with the appropriate state agency and the necessary state filing fees paid

Taxes

 

The federal government of the United States imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents' estates, and certain bankruptcy estates. Some state and municipal governments also impose income taxes. The first Federal income tax was imposed (under Article I, section 8, clause 1 of the U.S. Constitution) during the Civil War, then again in the 1890s, and again after the Sixteenth Amendment was ratified in 1913. Current income taxes are imposed under these constitutional provisions and various sections of Subtitle A of the Internal Revenue Code of 1986, as amended, including 26 U.S.C. § 1 (imposing income tax on the taxable income of individuals, estates and trusts) and 26 U.S.C. § 11 (imposing income tax on the taxable income of corporations).

 

Congress has typically shown a preference for long-term investment by having a capital gains tax rate lower than the ordinary income rate. However, only long-term capital gains get preferential treatment; short-term capital gains (from property held for one year or less) are taxed at the same rate as ordinary income. Added complications come from various distinctions within each category. For instance, qualified dividends, which were previously taxed at ordinary income rates (as non-qualified dividends currently are), are currently taxed at long-term capital gain rates until 2011 under the Jobs and Growth Tax Relief Reconciliation Act of 2003, and within long-term capital gains, gains on certain real estate, collectibles, and small business stock each have their own tax rates. 

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