Finalizing Tax Preparation Services on Amended Tax Returns | Finance Review

Posted on 11/18/2011 by admin

Finalizing Tax Preparation Services on Amended Tax Returns

November 17, 2011 by ButterflyFiled under: Taxes

Most tax practitioners require a little extra tax preparation education to learn the details about preparing an amended return. When Form 1040X is properly completed, it summarizes the new tax return and explains the contrast with the original filing.

Assembly of the entire package is a key element of tax preparer training. An amended tax return is only mailed to the IRS and never electronically filed. The mailing is sent to the same IRS Service Center that processed the original tax return. The amendment forms should easily lead the IRS agent to the tax reporting changes.

Form 1040X is the top page of an amendment filing. This form provides the essential details contained on the newly prepared Form 1040. A most important part of paid tax preparer study is that Form 1040X must have a clear reason for filing an amended return. This explanation points out what forms have changed.

The IRS Service Center manually processes the amended return. After assuring that the explanation for the change is sufficient, the attached documentation is examined. Consequently, the pages that follow Form 1040X are the new Form 1040 along with any new schedules. All of these attachments are prepared by following the same tax preparation guide that would have been deployed if the original tax return was accurately prepared.

An IRS agent reviews all the new information described on Form 1040X. If additional documentation is required, a letter is sent that requests specific details before the amendment is processed.

In addition, there is a double check of all the withholding and other tax payments listed on the amended tax return. Payment of any additional tax owed as a result of the amendment is sent with the Form 1040X. Refunds require approximately 8 to 12 weeks of processing for taxpayers to receive.

The IRS does verify information on amended tax returns more thoroughly than original tax returns. Therefore, efficient processing of an amendment demands providing a clear reason for amending and proper documentation. A little more detail is thus sent with an amended tax return. For example, efficiency of IRS processing improves by sending copies of the original tax return pages that have changed.

In addition, attaching a photocopy of the supporting document for the amendment is recommended. With original tax filings, copies of documents are not attached – other than a W-2 or other form showing withholding. Only an amended tax return should have a copy of any document that supports a new deduction.

More than any of the other tax preparation services, amended tax returns entail a focus on clear explanation and organized documentation. Nothing related to amendments is accepted without some proof.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for tax preparation education and tax professionals. Access to free questions for the tax preparer training is available on their website.

Article Source:

http://EzineArticles.com/?expert=Sawyer_Adams

via Finalizing Tax Preparation Services on Amended Tax Returns | Finance Review.

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IRS Tax Problem Solver Blog – IRS Help

Posted on 11/18/2011 by admin

November 16, 2011

IRS Corners Prisoner Tax Cheats0In their ongoing efforts on catching tax cheats, the IRS has prevented $4.4 billion in bogus tax refunds from being given out this year. This represents an increase of 171% from the previous year, according to the report released by the Treasury Inspector General for Tax Administration TIGTA. The TIGTA reported in 2010 that a total of almost 50,000 prisoners claimed more than $130 million in tax refunds, which largely went unscrutinized.The TIGTA report also states that, “As of April 30, 2011, the IRS reported that it had selected 199,854 tax returns filed by prisoners for screening. This represents a 256 percent increase in the number of prisoner tax returns identified and sent to screening when compared with the same period last processing year.”The increasing incidences of tax cheating by prisoners still serving their sentences has been a thorn in the IRS’ side of late, which explains the IRS tightening their monitoring of such crimes. In fiscal 2010, investigations into tax fraud increased by 14% and the corresponding recommendations for prosecution rose by 18%, figures that exceeded the IRS’ own targets. Audits of millionaires spiked by a hefty 73% last year as the IRS strived to close the tax gap the difference between the amount of tax collected and the amount actually owed, all in the midst of Congressional budget cuts.Another major crackdown by the IRS is the investigations into offshore banks suspected of assisting wealthy American taxpayers hide their taxable income in overseas accounts. Thus far, 11 banks have been put under investigation including Credit Suisse, HSBC Holdings and various other regional banks.Over and above all these, the IRS also has to administer various social policy programs through the tax code. This has lent weight to the often heard argument that the tax code is extremely complex.One other complaint about the IRS is the difficulty in communicating with them. Nina Olson, the National Taxpayer Advocate, commented that, “IRS is still failing to answer one out of every four calls it receives from taxpayers who need assistance. Equally concerning, among calls that do get answered, the average wait time in FY 2010 was nearly 11 minutes, up from about four and one-half minutes in FY 2007.”Besides that, the rate the IRS responds to correspondences also leaves much to be desired. The “correspondence inventory” shot up by 31% between Fiscal Year 2007 and Fiscal Year 2010. According to Olson’s estimates, the IRS spends only 5% of its budget on taxpayer services.Last tax season the IRS gave refunds amounting to $142.2 million to 140,596 taxpayers due to processing errors. Some of the programs that resulted in significant refund errors were the First-Time Homebuyer Credit, the Adoption Credit, the Nonbusiness Energy Property Credit and the Plug-in Electric and Alternative Motor Vehicle Credit.Bookmark & Share

via IRS Tax Problem Solver Blog – IRS Help.

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Tips for Choosing a Tax Preparer

Posted on 11/11/2011 by admin

Tips for Choosing a Tax Preparer

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

Here are a few points to keep in mind when someone else prepares your return:

Check the person’s qualifications. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics. New regulations effective in 2011 require all paid tax return preparers including attorneys, CPAs and enrolled agents to have a Preparer Tax Identification Number.

Check the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site. Check out these helpful links:

e-file for Individual Taxpayers

Free File

Free Tax Return Preparation For You by Volunteers

You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to:

Internal Revenue Service

Fresno, CA 93888

Download Form 3949-A and fill it out or order by mail at 800-TAX FORM (800-829-3676).

Related Links:

PTIN Requirements for Return Preparers

The Office of Professional Responsibility

Where Do You Report Suspected Fraud Activity?

via Tips for Choosing a Tax Preparer.

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IRS to Delay Fingerprinting Requirement for Certain PTIN Applicants, Shulman Says (IR-2011-108) | CCHGroup.com   News & Information

Posted on 11/11/2011 by admin

IRS to Delay Fingerprinting Requirement for Certain PTIN Applicants, Shulman Says (IR-2011-108)

Posted on 11/09/2011 by CCH

IRS Commissioner Douglas H. Shulman told tax professionals on November 8 that the Service has delayed its plan to fingerprint certain preparers who apply for preparer tax identification numbers (PTIN). Shulman also reported that the IRS continues to learn how to use the information in new Schedule UTP, Uncertain Tax Position Statement, while respecting taxpayers’ internal analysis and deliberations. Shulman spoke at the national tax conference of the American Institute of Certified Public Accountants (AICPA) in Washington, D.C.

 

Return Preparer Initiative

 

Effective January 1, 2011, all return preparers who prepare returns for compensation, subject to certain exceptions, must obtain or renew a PTIN. The IRS launched an online PTIN registration system in 2010. “Sixty percent of the preparers who have registered for a PTIN are not CPAs, enrolled agents or attorneys,” Shulman reported. The Service has also posted PTIN troubling-shooting tips on its website.

 

The IRS indicated that certain preparers would be required to submit their fingerprints when applying for a PTIN. At an October 7 hearing, the AICPA and other professional organizations asked the IRS to revisit the fingerprinting proposal (TAXDAY, 2011/10/10, I.5).

 

Shulman announced that the Service has delayed the fingerprinting proposal. “We have decided to hold off on fingerprinting as we consider the issues that have been raised, and have further discussions with interested parties,” Shulman said.

 

“The AICPA welcomes the development,” Edward Karl, CPA, vice president, taxation, AICPA, told CCH. “The IRS heard a chorus of concern about the proposal on October 7,” Karl added.

 

Individuals who are not CPAs, EAs [enrolled agents], attorneys and certain other preparers are exempt at this time from the registered tax return preparer examination. “From the beginning, we planned to exempt CPAs, EAs and attorneys from the testing requirements,” Shulman said. He noted that the CPA community has extensive testing and continuing education requirements in place. On its website, the IRS reported that the registered tax return preparer examination is expected to be available in late November.

 

Preparer Oversight

 

“Beginning soon, the IRS will send letters to tax return preparers who have been identified as high risk,” Shulman said. “The letters are not sent randomly. They are based on real data where we see compliance issues.” The IRS also will increase in-person visits to preparers. Additionally, the Service will beef-up the resources available to the IRS Office of Professional Responsibility (OPR).

 

Schedule UTP

 

Shulman reported that the IRS has received about 1,500 Schedules UTP containing 3,500 disclosures. “About half of all Schedule UTP returns filed contained only one uncertain tax position. Not surprisingly, the top three code sections were Section 41, research tax credits, Section 482, allocation of income including transfer pricing, and Section 162, trade and business expenses.”

 

“The goal of Schedule UTP is to get the information we need while respecting the taxpayer’s analysis,” Shulman said, adding that “this is clearly a learning year for taxpayers and a learning year for the IRS.” The IRS is committed to working through any glitches, he noted.

 

Offshore Disclosures

 

“The [offshore] settlement program exceeded our wildest expectations,” Shulman said (TAXDAY, 2011/08/29, I.2). Taxpayers who did not participate in the now-closed offshore initiative should go forward under the Service’s permanent settlement program, Shulman noted.

 

IRS Budget

 

The Budget Control Act of 2011 (P.L. 112-25) dictated a certain reduction in federal spending and the IRS is not exempt, Shulman explained (TAXDAY, 2011/10/21, I.7). At this time, the subcommittees in the House and Senate responsible for the IRS have approved budget cuts for the Service, he reported. “We are still engaging with Capitol Hill so lawmakers understand the consequences of budget cuts to the Service.”

 

CPA Community

 

Shulman applauded the AICPA for the services it provides to not only taxpayers but also to CPAs in continuing education and other programs. “Whatever changes come our way, the productive working relationship that the IRS and CPA community enjoy remains a critical element of our tax system.”

 

By George L. Yaksick, Jr., CCH News Staff

 

IR-2011-108

 

IRS Online Troubleshooting Tips

 

via IRS to Delay Fingerprinting Requirement for Certain PTIN Applicants, Shulman Says (IR-2011-108) | CCHGroup.com   News & Information.

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Do Americans Favor a Flat Tax? | Hoover Institution

Posted on 11/10/2011 by admin

November 9, 2011 | Wall Street Journal

news » hoover daily report

Do Americans Favor a Flat Tax?

by David Brady (Deputy Director; Davies Family Senior Fellow; and cochair, Virtues of a Free Society Task Force) and Tammy Frisby (Research Fellow)

Last week, YouGov/Polimetrix asked a sample of 1,000 adults about a flat rate income tax. We commissioned the poll to survey Americans on their opinion of changing from our current income tax system to a flat tax system under which all but low-income Americans would pay 19% of their income in taxes, regardless of how much money they make.

Flat tax proponents face an uphill battle. Americans in general opposed the flat tax proposal 39% to 28%. Democrats opposed the flat tax by a wide margin, 52% to 19%. More Republicans supported the flat tax proposal than opposed it, but even then, a majority did not favor it (45% in favor to 33% opposed). The level of support is only slightly higher among registered voters who say they will vote in a Republican primary or caucus next year. These Republicans favored the flat tax 48% to 30%.

But fully one-third of all respondents in our survey were unsure about their opinion of the proposed flat tax. This high degree of uncertainty is consistent with a recent Rasmussen poll of likely voters that asked about a 17% flat tax on income over $17,000. In the Rasmussen poll, 42% opposed the flat tax, 31% favored it, and 27% remained undecided.

Surveys conducted in the late 1970s and early 1980s found similar high rates of uncertainty in public opinion about the flat tax. During this earlier period, one-fifth to one-quarter of Americans reported that they were not sure about their position on flat tax proposals.

In the late 1990s, there was a sustained national debate over the flat tax, spearheaded by Republican presidential candidate Steve Forbes and House Majority Leader Dick Armey. What did Americans think about the flat tax then? Using the Roper iPoll database—a curated repository of public opinion surveys conducted by reputable polling organizations, including the NBC/Wall Street Journal poll—we identified 10 surveys from 1995-1996 and two from 1999 that asked respondents to choose between a graduated rate income tax system and a flat, single rate income tax.

Support for the switch to a flat rate system ranged from a low of 38% in late 1995 to highs of 48% and 49% throughout 1996. In 1999, two surveys that asked Americans to make the choice between a tax system under which higher earners pay higher rates and a single rate for all taxpayers reported that 48% and 50%, respectively, supported a single rate.

Today our survey data suggest that the decisive group of Americans who would be needed to create majority support for a flat rate could be those who continue to suffer in our struggling economy.

In addition to the partisan divisions on the flat tax, one of the largest divides in opinion in our survey fell between Americans who have fared better and worse in our difficult economy. We asked respondents about the change in their personal finances over the past year. Among the roughly half (or 48%) who reported that they were better off or about the same financially now as one year ago, 46% opposed the proposed flat tax, 29% favored the flat tax and 25% were unsure.

Contrast that group to the 45% of respondents who said their personal finances were worse off. These Americans were about as likely to support the flat tax (31%), but much less likely to oppose it (35% opposed) and much more likely to be unsure about their position (34%). That’s a big percentage of undecideds up for grabs.

Persistent high unemployment, slow economic growth, and calls to “tax the rich” might sway these Americans to stick with the current graduated rate system and possibly support increases in the marginal rates paid by the highest earners. So the challenge for proponents of a flat or flatter tax system is to persuade these Americans that a radically reformed tax code would spur the so-far-elusive investment, robust economic growth, and job creation that would make them better off a year from now than they are today.

Mr. Brady is deputy director of the Hoover Institution and a professor of business at Stanford University. Ms. Frisby is a research fellow at the Hoover Institution.

via Do Americans Favor a Flat Tax? | Hoover Institution.

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Dont Mess With Taxes

Posted on 11/10/2011 by admin

Wednesday, November 09, 2011The broader political reach of the man behind the no-taxes pledgeIn noting how a small group of Republicans dared defy the man behind the no-taxes pledge, I quipped “what are they afraid of? That Grover Norquist will egg their houses?”Obviously I was being a smart-ass trying to be funny had pranks on my mind since we had just passed Halloween.I know Norquist wields a lot of power. And his personal support, along with that of his Americans for Tax Reform ATR, carries a lot of weight on Capitol Hill.JONATHAN ERNST/Reuters/Fotoglif  — Americans for Tax Reform President Grover Norquist speaks during the Reuters Washington Summit in the Reuters newsroom in Washington, Nov. 7, 2011.Ive seen it first-hand. When I worked in the Washington, D.C., government relations OK, lobbying offices of two major companies, I watched as they shelled out big bucks each year to ATR. I must also note that we followed expected government relations OK again, lobbying protocol and gave money to more liberal groups, too.And in the years that Ive been gone from the nations capital, ATR has grown. A lot.Politico looks at How Grover Norquist Corners Congress:”Americas No. 1 anti-tax activist has turned his single-minded nonprofit organization and its no new taxes pledge into a sprawling lobbying empire that leverages his iconic status to influence politicians on a broad array of issues that sometimes have little or nothing to do with preventing tax hikes.”The upshot is that while there might be some occassional defections, Norquists organziation is going to be around, and powerful, for a while. Youve been warned.

via Dont Mess With Taxes.

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IRS Tax Problem Solver Blog – IRS Help

Posted on 11/07/2011 by admin

November 4, 2011

Tax Cheats Fraudulent Tax Refund Claims:

A man from Mableton, Georgia has been using stolen identities of homeless people to claim false tax refunds. In an ongoing court case, prosecutors said Rahman Hill, 43 was a co-conspirator in a scheme that has cheated the IRS of about $1.6 million in fraudulent claims. He will spend 8 years in prison. Thus far, three other individuals have been charged in the same case.US Attorney Sally Quillian Yates said Hill would obtain records of these people from homeless shelters, prisons and other sources. Then he would claim tax refunds using their names and direct the checks to bank accounts owned by him and co-conspirator Kelcey Pierre Miller, 36, of Atlanta. They would access the funds with their ATM cards, debit cards and wire transfers.Other conspirators include Keith Lamone Richard, 40, of Decatur, Peter Raymond Williams, 42, of Newark, New Jersey and Jabbar Ivan Pender, 40, of Newark who filed 123 returns between December 2005 and March 2007 and received $1,660,152 in refunds.Miller received a jail term of six years and three months while Richard was sentenced to three years’ probation and Williams’ prison term is set at five years and three months. Pender from Newark is already in federal prison on drug trafficking charges.Rodney E. Clark, a special agent attached to the IRS Criminal Investigation department said in a joint statement with the US Attorney’s office, “The defendant sentenced today stole the identities of some of the most vulnerable citizens of our society. This is not only a financial loss to the US Treasury, but it also causes great harm and hardship to the victims of the identity theft.”Watch Out for New Phishing ScamThere is a new phishing scam circulating in New York and other parts of the country that appears to be an email sent by the IRS with the subject line, “IRS Notification”. It contains an attachment that, when opened, will cause major harm to your computer. The content of the email claims to give you details of taxes owed in the 2010 – 2011 tax year.In typical phishing scams, clicking an attachment could release software designed to access all your passwords, bank and personal details from your computer.Diane Besunder, IRS spokeswoman for New York said, “The IRS does not send out unsolicited e-mails about a taxpayers account or ask for detailed personal and financial information. The IRS also never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.”Do not open any email or click any attachment in emails purportedly coming from the IRS. Report it at once to phishing@irs.gov. Once you have forwarded the email, delete it immediately

via IRS Tax Problem Solver Blog – IRS Help.

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The Tax Foundation – Tax Foundation’s “Tax Policy Blog”

Posted on 11/06/2011 by admin

“South Park” and Millionaires: The Top 0.17%

Posted on November 3, 2011 by David S. Logan

Comedy Central’s controversial series “South Park” aired an episode last night appropriately titled “1%.”  As one expected from the press release, it was about class warfare and the various 99%/Occupy [insert place name here] movements around the world.

Via a circuitous (yet not unrealistic) route, the episode illustrates how the 99% movement could theoretically fail and embeds-knowingly or unknowingly-an absolute gem of a tax statistic on the way.

All of South Park Elementary (less Eric Cartman, who is the 1%) forms a 99% movement to change policy.  But eventually the fifth graders decide to break from the 99% and form their own 83% movement.  This leaves the fourth graders (the main class of “South Park”) as the 17%.  But one character points out that since this 17% must still be mad at its top 1%, it now must focus its outrage on the top 0.17%.

According to the IRS, this is the exact percentage of 2009 taxpayers who made over $1 million.

Only the writers know whether mentioning the percentage of millionaires was pure coincidence, but it’s worth noting that the father of Matt Stone-one of the show’s creators-is an economist.

WARNING: The episode described above contains adult language and extremely politically incorrect content.  It is intended for mature audiences only.

via The Tax Foundation – Tax Foundation’s “Tax Policy Blog”.

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The Tax Foundation – Tax Foundation’s “Tax Policy Blog”

Posted on 11/06/2011 by admin

Never, Ever Trust What the IRS Says

Posted on November 4, 2011

That’s our friend Paul Krugman talking about us, presumably, and the sources we use to show there is actually a great deal of income mobility, both up and down the economic ladder.  For instance, the table below, from this report based on IRS data, shows that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007.  About 40 percent of households in the top quintile moved to a lower quintile over this 9 year period.

Yes, the biggest chunk moved to the next quintile over, but about 1/3rd of those in the lowest quintile moved to the middle quintile or higher.  About 6 percent moved all the way from the lowest to the highest quintile!

The St. Louis Fed found similar results.

Based on the same data, the first graph below shows that millionaires don’t stick around too long – about half for just one year.  It seems Steve Martin was on to something, although income fluctuations appear to be driven more by capital gains than crazy inventions.

Lastly, based on another set of IRS data, the second graph below shows that it is even less likely that one can remain among the top 400 income earners.  Over the period 1992 to 2008, about 73 percent make the list for just one year.  Only 4 remain among the top 400 for all 17 years.

Note:  Computations by author from the 1999-2007 IRS SOI Individual Tax Panel.

 

via The Tax Foundation – Tax Foundation’s “Tax Policy Blog”.

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More IRS Troubles for Cash-Strapped Small Businesses – The Tax Blog – SmartMoney

Posted on 11/05/2011 by admin

By Arden Dale

Lots of small companies are skipping their federal payroll taxes in this wobbly economy, and tax lawyers say the Internal Revenue Service has gotten more aggressive about penalizing executives, accountants or other individuals for the lapses.

Among the IRS’s tough tactics: freezing a company’s accounts receivable, seizing assets and garnishing wages of responsible employees. It can assess substantial penalties and apply tax liens.

Payroll tax debt can “bring a company to its knees,” says Caroline D. Ciraolo, a partner at Rosenberg Martin Greenberg LLP in Baltimore, Md. She sees cases more frequently now, citing the example of a tool company that suffered a fire and, struggling in the rocky economy, used money it should have spent on payroll tax as an emergency slush fund.

Other clients with payroll tax problems included a medical services company and a group of charter schools for at-risk children. Closely-held businesses like these may have revenue of several millions of dollars and may be owned by four or five people.

A government watchdog in July estimated that some $54 billion in employment taxes go underreported every year. The report by Treasury Inspector General for Tax Administration described a study the IRS has under way, in which it plans to audit payroll-tax compliance by some 6,600 randomly picked employers for recent years.

Chicago tax lawyer Robert E. McKenzie, a partner at Arnstein & Lehr LLP, describes the IRS’s tactics as “harsh.” In singling out people to penalize, it seems “more likely to shoot at the person on the sidelines” instead of those genuinely responsible for the arrears.

The tax code gives leeway to hold the company itself liable for employment tax errors, or to lay responsibility with a range of individuals or entities, from officers, owners, bookkeepers and treasurers to lenders that prevent companies from paying employment tax by seizing control of company accounts and dictating what debts can be paid.

Once the IRS adds its penalties, the debt can snowball. Companies can be fined for outright failure to pay or to report on the tax, and also for paying late — that is, if it misses by more than two-and-a-half days the deadline for depositing the funds with a bank or other authorized institution, which then forwards them to the IRS. Fines for late payment can go as high as 25% of the tax due. Sometimes employers hesitate to file a tax report when they have fallen behind on payments, and that just compounds their problems and triggers more penalties.

Typically, tax attorneys like Ciraolo and McKenzie get involved after a business has run into trouble. Often their help is sought by an individual whom the IRS has held personally liable.

Tom Nichols, a tax attorney in Milwaukee, Wis., advises new businesses on how to avoid trouble in the first place. The best plan: Meet the deadlines, he says. Short of that, pay taxes the IRS could make a personal liability for the person it targets.

The Federal Insurance Contribution Act (FICA) tax is equal to 15.3% of an employee’s gross wages up to the FICA wage base of about $110,000, and consists of Social Security (12.4%) and Medicare taxes (2.9%). Half of the FICA tax is paid through an employee contribution (7.65%) and the other half is paid by the employer (7.65%); the latter can’t trigger personal liability.

In hard times, businesses tend to look at payroll tax as their own money, and hang onto it or use it to pay “the squeakiest wheels first,” Nichols says. Often, this is a supplier or someone else key to keeping the business running.

In the end, the IRS, not employees, stands to lose. Even employers who do not pay payroll tax report it on Forms W2 issued to employees, which keeps workers right with the IRS.

via More IRS Troubles for Cash-Strapped Small Businesses – The Tax Blog – SmartMoney.

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