IRS compliance cleanup

For US business owners and LLC founders facing IRS compliance issues, a proactive approach is crucial. The core principle is to file missing returns first, even if you cannot pay the full amount.

This action prevents larger failure-to-file penalties and ensures you receive credit for deductions and exemptions, unlike an IRS-prepared substitute return. Before contacting authorities, gather all necessary documentation and estimate your liability accurately.

This includes IRS transcripts (via Get Transcript or Form 4506-T), payroll records, bank statements, payroll tax deposits, and prior returns. Correct any payroll and employment tax errors using the appropriate forms, such as Form 941 and Form 941-X for corrections, and Form 940 for FUTA.

State agencies also have specific correction processes, like California's EDD e-Services or various state webfile portals. Understanding penalties and interest is key.

Penalties can include failure-to-file, failure-to-pay, failure-to-deposit, information return penalties, and accuracy-related penalties. Relief options exist, such as First-Time Penalty Abatement, reasonable-cause relief, or statutory exceptions.

Reasonable cause typically applies to circumstances beyond your control, like natural disasters, inability to obtain records, serious illness, or system outages. Note that relying solely on a tax professional generally does not qualify for reasonable cause.

For withheld payroll taxes, known as trust fund taxes, IRC 6672 (Trust Fund Recovery Penalty - TFRP) can hold responsible persons personally liable. The IRS Internal Revenue Manual (IRM) provides detailed guidance on how TFRP is applied.

If you cannot pay, federal options include Online Payment Agreements, Installment Agreements, Offers in Compromise (OIC), Currently Not Collectible (CNC) status, and short-term extensions to pay. States offer similar payment plans and waiver processes, though rules vary.

If you encounter difficulties resolving issues through normal channels or face significant hardship, the Taxpayer Advocate Service (TAS) can provide assistance, assigning a dedicated advocate to help navigate the IRS.

State-Specific Considerations: - California: The EDD manages state payroll taxes (UI, ETT, SDI, PIT) and offers e-Services for employers, including resources for correcting prior reports or deposits. The Franchise Tax Board (FTB) handles business filing and franchise obligations. - New York: The Department of Taxation and Finance provides specific guidance for withholding, registration, filing, and deposit processes for employers, covering state withholding and sales taxes. - Texas: The Comptroller's site offers resources for filing, paying, penalty waivers, due dates, and e-filing/webfile options for employers. - Illinois and Florida: Both states' Departments of Revenue (DOR) provide portals with filing, payment, and compliance resources.

Always check state portals for specific penalty relief and waiver processes. Practical Cleanup Checklist: - Step A — Inventory & documentation: Obtain IRS transcripts (Get Transcript or Form 4506-T), payroll journals, bank statements, prior returns, W-2s/1099s. - Step B — File missing returns: Prepare and submit federal forms (e.g., 941, 940, 1120/1065/1040 schedules) and state returns.

Use Form 941-X for payroll corrections. - Step C — Reconcile deposits: Compare required vs. actual deposits, correct any missed deposits, and pay associated failure-to-deposit penalties. - Step D — Calculate balance due: Include tax, penalties, and interest, confirming amounts with IRS notices and account transcripts. - Step E — Request relief: Apply for First-Time Abatement, Reasonable Cause (using Form 843 if required), or administrative relief via phone/notice instructions. - Step F — Select payment path: Options include online payment, installment agreement (Form 9465/online), Offer in Compromise (Form 656 with financial forms 433-A/B), Currently Not Collectible (CNC) status (with Form 433-A/B documentation), or a short-term payment plan. - Step G — Address responsible-person exposure: Identify officers/owners with payroll signature authority and consult a tax attorney if TFRP risk exists. - Step H — Monitor and document: Keep proof of filing/payment, maintain written correspondence, and consider a Power of Attorney (Form 2848) for professional representation.

Documents to gather for a resolution case include: last 3 months of bank statements, most recent payroll reports and tax deposits, 3 months of paystubs, copies of prior tax returns, articles of organization/operating agreement (for LLC), a list of officers/responsible persons, proof of hardship (medical, disaster records), and any IRS notices.

Consider hiring a CPA, enrolled agent (EA), or tax attorney for complex payroll issues (especially TFRP risk), potential criminal exposure, large balances, or when negotiating OIC/installment offers. Ensure you use a reputable professional and file Form 2848 to authorize their representation.

Respond promptly to IRS and state notices. Filing reduces penalties in many cases, and acting early provides more options, as eligibility for programs like Fresh Start or OIC can be time-sensitive.

What to expect: Be aware of potential penalties, interest, enforcement actions like levies or liens, the possibility of an IRS substitute return, and the risk of Trust Fund Recovery Penalties. Templates & Downloads: Look for sample documentation checklists, reasonable-cause statement outlines, and direct links to key forms such as Form 4506-T, 941/941-X, 940, Form 843, Form 2848, and applications for Online Payment Agreements and Offers in Compromise.

Call to Action: If you need assistance, contact a qualified CPA, Enrolled Agent, or tax attorney. The Taxpayer Advocate Service is also a valuable resource for those who meet their criteria.

For US business owners and LLC founders facing IRS compliance issues, a proactive approach is crucial. The core principle is to file missing returns first, even if you cannot pay the full amount.

This action prevents larger failure-to-file penalties and ensures you receive credit for deductions and exemptions, unlike an IRS-prepared substitute return. Before contacting authorities, gather all necessary documentation and estimate your liability accurately.

This includes IRS transcripts (via Get Transcript or Form 4506-T), payroll records, bank statements, payroll tax deposits, and prior returns. Correct any payroll and employment tax errors using the appropriate forms, such as Form 941 and Form 941-X for corrections, and Form 940 for FUTA.

State agencies also have specific correction processes, like California's EDD e-Services or various state webfile portals. Understanding penalties and interest is key.

Penalties can include failure-to-file, failure-to-pay, failure-to-deposit, information return penalties, and accuracy-related penalties. Relief options exist, such as First-Time Penalty Abatement, reasonable-cause relief, or statutory exceptions.

Reasonable cause typically applies to circumstances beyond your control, like natural disasters, inability to obtain records, serious illness, or system outages. Note that relying solely on a tax professional generally does not qualify for reasonable cause.

For withheld payroll taxes, known as trust fund taxes, IRC 6672 (Trust Fund Recovery Penalty

- Texas: The Comptroller's site offers resources for filing, paying, penalty waivers, due dates, and e-filing/webfile options for employers. - Illinois and Florida: Both states' Departments of Revenue (DOR) provide portals with filing, payment, and compliance resources.

Always check state portals for specific penalty relief and waiver processes. Practical Cleanup Checklist: - Step A — Inventory & documentation: Obtain IRS transcripts (Get Transcript or Form 4506-T), payroll journals, bank statements, prior returns, W-2s/1099s. - Step B — File missing returns: Prepare and submit federal forms (e.g., 941, 940, 1120/1065/1040 schedules) and state returns.

Use Form 941-X for payroll corrections.

- Step E — Request relief: Apply for First-Time Abatement, Reasonable Cause (using Form 843 if required), or administrative relief via phone/notice instructions. - Step F — Select payment path: Options include online payment, installment agreement (Form 9465/online), Offer in Compromise (Form 656 with financial forms 433-A/B), Currently Not Collectible (CNC) status (with Form 433-A/B documentation), or a short-term payment plan.

2848) for professional representation. Documents to gather for a resolution case include: last 3 months of bank statements, most recent payroll reports and tax deposits, 3 months of paystubs, copies of prior tax returns, articles of organization/operating agreement (for LLC), a list of officers/responsible persons, proof of hardship (medical, disaster records), and any IRS notices.

Consider hiring a CPA, enrolled agent (EA), or tax attorney for complex payroll issues (especially TFRP risk), potential criminal exposure, large balances, or when negotiating OIC/installment offers. Ensure you use a reputable professional and file Form 2848 to authorize their representation.

Respond promptly to IRS and state notices. Filing reduces penalties in many cases, and acting early provides more options, as eligibility for programs like Fresh Start or OIC can be time-sensitive.

What to expect: Be aware of potential penalties, interest, enforcement actions like levies or liens, the possibility of an IRS substitute return, and the risk of Trust Fund Recovery Penalties. Templates & Downloads: Look for sample documentation checklists, reasonable-cause statement outlines, and direct links to key forms such as Form 4506-T, 941/941-X, 940, Form 843, Form 2848, and applications for Online Payment Agreements and Offers in Compromise.

Call to Action: If you need assistance, contact a qualified CPA, Enrolled Agent, or tax attorney. The Taxpayer Advocate Service is also a valuable resource for those who meet their criteria.

• TFRP) can hold responsible persons personally liable. The IRS Internal Revenue Manual (IRM) provides detailed guidance on how TFRP is applied. If you cannot pay, federal options include Online Payment Agreements, Installment Agreements, Offers in Compromise (OIC), Currently Not Collectible (CNC) status, and short-term extensions to pay. States offer similar payment plans and waiver processes, though rules vary. If you encounter difficulties resolving issues through normal channels or face significant hardship, the Taxpayer Advocate Service (TAS) can provide assistance, assigning a dedicated advocate to help navigate the IRS. State-Specific Considerations:
• California: The EDD manages state payroll taxes (UI, ETT, SDI, PIT) and offers e-Services for employers, including resources for correcting prior reports or deposits. The Franchise Tax Board (FTB) handles business filing and franchise obligations.
• New York: The Department of Taxation and Finance provides specific guidance for withholding, registration, filing, and deposit processes for employers, covering state withholding and sales taxes.
• Step C — Reconcile deposits: Compare required vs. actual deposits, correct any missed deposits, and pay associated failure-to-deposit penalties.
• Step D — Calculate balance due: Include tax, penalties, and interest, confirming amounts with IRS notices and account transcripts.
• Step G — Address responsible-person exposure: Identify officers/owners with payroll signature authority and consult a tax attorney if TFRP risk exists.
• Step H — Monitor and document: Keep proof of filing/payment, maintain written correspondence, and consider a Power of Attorney (Form