Corporate, Tax and Bankruptcy Update
We have noticed several payroll processing companies go out of business or file for bankruptcy, leaving their clients (the businesses forwhom they process payroll) without services, and potentially facing large tax bills. One such company that filed bankruptcy in Utah in 2014 had been automatically withdrawing the wages and tax deposits from the clients, paying the wages to the employees, but keeping the tax deposits to fund other cash shortfalls or other uses. Periodically the IRS sent some of the clients notices that the tax deposits had not been made for a particular quarter, but the payroll company would assure the clients that the tax deposits had been made and there was perhaps an accounting error with the IRS. Finally, the truth came out that the clients had paid the tax deposits to the payroll company, but the payroll company kept that money. The clients now have to pay the taxes (again) to the IRS, and negotiate the best they can for interest and penalty reductions. In addition, because these are payroll tax deposits owed, the IRS has the power to hold certain control persons, like CEOs, CFOs, and controllers individually liable for about half the tax bill (called the “trust fund portion”).
Some steps a business can take to avoid this problem are: (1) take payroll processing back in-house; (2) pay the tax deposits directly to the IRS; and/or (3) periodically check with the IRS to make sure the tax deposits are paid. Companies may not want to take payroll processing back in-house because of the complexity and time required for the task. However, many companies may not know that they can make tax deposits directly with the IRS (and the State of Utah). Your payroll processor should give you the option of paying the tax deposits directly, leaving you in control of those funds. Making tax deposits is not a complicated process once you become familiar with the EFTPS website. Companies that choose to let the payroll processor continue to make tax deposits for them can check with the IRS periodically to make sure tax deposits have been made. Don’t wait for the IRS to send you a letter saying your company missed paying quarterly taxes, and interest and penalties are accruing.
If you have questions about any of these subjects, or any other corporate or bankruptcy issues, the attorneys at Clyde Snow & Sessions are ready to help you. Our Corporate, Tax and Bankruptcy attorneys represent companies, owners, officers, and investors to achieve the best results in any situation.