by Frank James
There are apparently a lot of deadbeat businesses out there when it comes to paying their payroll taxes.
Part of the problem is that there are a lot of payroll-tax scofflaws out there, the GAO determined following an audit of the Internal Revenue Service database.
As of September 30, 2007, IRS's records showed that over 1.6 million businesses owed over $58 billion in unpaid payroll taxes, including interest and penalties. Of that amount, 70 percent of all unpaid payroll taxes are owed by businesses with more than a year (4 tax quarters) of unpaid federal payroll taxes, and over a quarter of unpaid payroll taxes were owed by businesses that accumulated tax debt for more than 3 years (12 tax quarters).
And some of these business owners are pretty shameless, as the GAO found:
Our analysis of those businesses showed some owners/officers abuse the tax system, willfully diverting amounts withheld from their employees' salaries to fund their business operations or their own personal lifestyle. For example, the owner of one of our case study businesses that owed almost $2.5 million was under-reporting their personal income and was involved in possible check kiting and money laundering. Another had accumulated almost $2.5 million in unpaid payroll taxes and made large cash withdrawals prior to filing bankruptcy multiple times. A third had accumulated over $500,000 in unpaid payroll taxes over a 10-year period as well as another $500,000 in personal taxes. The owner had put property in a spouse's name and sold property to children for less than market value to avoid IRS collection action.
Contributing to the problem, the GAO said, was the IRS's frequent weakness when it came to enforcement.
IRS's overall approach to collection focuses primarily on gaining voluntary compliance, which can allow egregious payroll tax offenders to continue to accumulate payroll tax debt for years that may never be collected.
• IRS is not timely filing liens. Our analysis of IRS's inventory of unpaid payroll tax cases as of September 30, 2007, found that for over a third of all businesses with unpaid payroll taxes assigned to the field, IRS had not filed a lien. Over 80 percent of payroll cases in the queue awaiting assignment did not have a lien filed. Circumstances may not warrant a lien being filed in all cases, such as when businesses are highly leveraged or have few tangible assets. However, for cases in which IRS has not filed a lien, the government's interest in the tax debtor's property is not protected.
• IRS is not timely assessing penalties to individuals responsible for not remitting business's payroll tax debts. IRS has a powerful tool to hold responsible owners and officers personally liable for withheld payroll taxes--a Trust Fund Recovery Penalty (TFRP). We found that, in a sample of 76 TFRP assessments, it took IRS over 40 weeks, on average, to decide to pursue collection against responsible owners/officers and an additional 40 weeks to actually assess the TFRP. Delays in assessing a TFRP can result in lost opportunities to collect unpaid payroll tax debts from the owners/officers while allowing them to continue to use the business tofund a personal lifestyle through the non-remittance of payroll taxes. We also found that IRS does not place as high a priority on collection efforts against the responsible owners/officers as it does the business, and treats the TFRP as a separate collection effort unrelated to the business.
The bottom line is that the $58 billion shortfall has to made up somehow. The money not duly collected from businesses to fund Social Security and Medicare, has to be transferred from the nation's general fund, money that comes from all taxpayers.
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