you may just want to call the Internal Revenue Service (IRS). The IRS offers ways to pay off your debt without risking your business. Some options include setting up monthly payments, or negotiating to reduce the amount of debt, also known as an Offer In Compromise (OIC) settlement. The IRS also accepts credit card payments, so it is possible to pay off your tax bill on a credit card and then pay down the credit card over a longer period of time than the IRS would typically allow.
In some cases, accountants may be able to petition on your behalf to reduce the penalties and interest due to extenuating circumstances. If you think that your business may qualify for this assistance, you may want to contact a Local Taxpayer Advocate. This is an independent organization within the IRS that reports to the National Taxpayer Advocate. Each state has at least one Local Taxpayer Advocate. These advocates are free, independent, and confidential. They typically work to assist taxpayers — both individuals and businesses —who are unable to resolve their tax issues through normal channels or who are experiencing a hardship.[2]
Be careful of businesses that claim they can help negotiate tax bills. While some of these companies are legitimate, others prey on people in trouble. They will ask for thousands of dollars up front and then be unable to reduce the debt. In general, contact your own accountant or lawyer for assistance or for a reputable referral.
Occasionally, you may be lucky enough to take advantage of amnesty programs. These programs can be either at the Federal, state, or local level. The programs usually require you to pay all of the outstanding debt that you owe, but they will waive the penalties and interest charges that you incurred by not paying on time. For some taxpayers the extra charges can amount to thousands of dollars. For instance, in February 2009, the Massachusetts Department of Revenue offered 159,000 tax delinquents amnesty if they paid their debts by April, 2009. Later that same year, Arizona passed two amnesty programs for their State and City Transaction Privilege Taxes (i.e., Sales Tax). Each of these programs varied in its implementation, duration, and applicability but it encouraged business owners to file and pay the tax they owed with either reduced or eliminated penalties and interest.
Beware, some amnesty programs don’t just offer a benefit, they also punish those that don’t take advantage of the opportunity to resolve their tax bill. In 2005, the state of California offered an amnesty program that ran from February to March of 2005. The program covered California corporate franchise tax, personal income tax, sales tax, and use taxes for pre-2003 periods. If a taxpayer participated in the program, the individual or business would have amnesty — no criminal or financial penalties would be incurred. The company could simply pay the tax owed and nothing more. However, taxpayers who did not participate in the program and who owed tax would be penalized. If they did not take advantage of the program, file their missing taxes, and pay off their debt, they could now be fined even more heavily than they were before. Missing the amnesty program could now result in a 40 percent accuracy-related penalty, doubling the sales tax penalties plus an automatic 50 percent penalty surcharge on interest![3]
Whichever course you choose, be sure to handle unresolved tax issues as quickly as possible. Since the government is entitled to this money, it can take extreme measures to get its funds. As a business owner, you don’t want to check your accounts one day to find that your assets have been seized and all the cash has been suddenly removed from your bank account. The impact this could have on a business would be devastating. Without money in the bank, chances are your business would be unable to purchase more products, pay your bills, or even pay your employees. Most businesses can resolve their back tax issues. Taking control and resolving it with the IRS is a much better, safer option than ignoring it and allowing the government to simply choose when and how to handle the problem. The sooner these problems are solved the better.
Lifesaver: While resolving back tax issues, make sure to keep filing and paying your current taxes on time. This will both ensure that you don’t incur additional fines and will give you more credibility when you start paying down your older bills. In some cases, the tax agency may even be willing to remove your most recent fines since you have been staying current with your tax debts.
3.2c Canadian tax consequences
In Canada, if you haven’t filed or paid your employees’ payroll taxes — that is, money that comes out of the employees’ paychecks to pay income tax, Canadian Pension Plan (CPP), and Employment Insurance (EI) — and have only been paying the employees their after-tax salaries, you may end up paying a penalty.
It won’t take long before Canada Revenue Agency (CRA) sends you a letter indicating that the payroll taxes have not been filed. This may seem like an easy letter to ignore; however, if you choose to ignore your taxes and not file, you will have a big problem.
CRA may assess a penalty of 10 percent of the required amount you failed to deduct for income tax, CPP, and EI. If you fail to file again in a calendar year, CRA may apply a 20 percent penalty, especially if you knowingly made the decision to not deduct the payroll taxes. You could also be fined $1,000 to $25,000 or be imprisoned for up to a year.
3.2d Relief for penalties and interest on taxes in Canada
If you realize that your business is already behind on taxes, there are ways to resolve a back tax issue without losing control of the situation. The best way to start is to work with a reputable accountant immediately to determine your business’s debt and options. Allowing a professional accountant to examine the situation may result in better options than if you try to resolve the situation alone. Although you will have to pay for your accountant’s time, the recommendations he or she provides may save you more money than what you spent.
You may be able to have your penalties and interest waived or cancelled in the following situations:[4]
• Extraordinary circumstance, which means something out of your control prevented you from paying your taxes on time (e.g., flood, fire, postal strike, serious accident or illness, or death in the immediate family).
• Inability to pay or a financial hardship. In this case, if accumulated interest causes prolonged financial hardship to the point that basic necessities cannot be provided such as medical help, food, transportation, or shelter.
• Actions by the Canadian Revenue Agency (CRA), such as processing delays that prevent a taxpayer being informed in a timely manner about an amount owing, errors in information given to the public that caused errors in the taxes filed, incorrect information provided to tax payers, errors in processing, delays in providing information, or delays in completing an audit.
If you fall into any of these categories, you may be able to get relief. You or your accountant can write to the CRA and ask that your penalties and interest be waived or cancelled. In some circumstances you may still have to pay the interest, but the CRA will reduce the amount.
3.3 Prevent tax problems in the future
The easiest way to prevent tax problems in the future is to always file and pay your taxes on time. If you are like many small-business owners, the management overhead of a business is often very time-consuming. Mundane tasks, such as paying taxes, can easily be forgotten when the business is busy. To ensure that you are staying on top of your taxes, set up a regular schedule for payments. If possible, outsource the work to a
