What can I do in my situation with the IRS? 3 Answers as of July 21, 2011From 2004 to 2008 I had a Business, and we used to hire sub-contractors to work with us. Unfortunately we had a problem with the IRS regarding the sub-contractors for the year of 2006 and also a mistake made by Jackson Hewitt in 2005 who we had wired to do our business and personal tax return in 2005. Most of the sub-contractors for some reason did not pay their taxes, and that created the problem for the year of 2006. The IRS Agent told us in 2008 that we would need to pay a portion of what they were supposed to pay to the IRS. The IRS Agent told us that the IRS were seeing the Sub-contractors as employees and that's why they were charging us, since the IRS were not able to find most of those subcontractors to try and get taxes from them. As I mentioned before, the IRS also found a problem for the year of 2005 that the Jackson Hewitt mistakenly did. So basically these are the two issues that we had with the IRS. I do not have the business anymore. And back in 2008 my Lawyer told me that he did not agreed with the approach of the IRS, charging our Company for taxes that did not belonged to us. What should I do on this situation?
Steven J. Fromm | Steven J. Fromm & Associates, P.C.
Payroll taxes are one corporate liability that shareholders can be personally liable for under Section 6672 of the Internal Revenue Code. If you are or were found to be a responsible person as defined under that section you are or may be liable for the corporate tax obligation. You need to get with tax counsel immediately to see what your options are and if you have foreclosed yourself from contesting this determination if you were found to be a responsible person.
Answer Applies to: Pennsylvania
The Schreiber Law Firm | Jeffrey D. Schreiber
Unfortunately, there is insufficient information for a more specific answer. First, what kind of business was it, and what were these "subcontractors" hired to do? Many people hire others and call them subcontractors, and that is something the IRS looks out for all the time, and only certain persons are truly subcontractors. Broadly speaking, a subcontractor is someone you hire to give you a result - you have no control or say in when they work or how they do it and you do not provide any work place for them to do the work - it is entirely up to them how they get the result. Anything less is an employee. If someone is an employee (and just calling them a subcontractor or independent contactor carries no weight) as the statutory employer you are obligated to withhold income tax and the employees half of the Social Security. If you do not, those are what are known as trust taxes (you hold them in trust for the employee) and failure to pay trust taxes can make the individual owners (even if the employer was a corporation) personally responsible for those taxes. If they were in fact subcontractors, the designation as a statutory employees should have been appealed. Since it sounds this occurred in 2008 or so, time has run on that. Depending on if and when the tax was assessed or if a responsible person designation was made, you may still have recourse. You should consult a tax litigation or tax resolution attorney.
Answer Applies to: California