Shouldn’t the payroll company pay the taxes to IRS as they indicated when deducted money from our bank accnt?
We owned a business that we closed last March. Back in January 2008 all the money for payroll (direct deposits and checks) were being paid through the payroll company’s bank account and then they deduct the money from our bank account to compensate along with their fees. One pay period in January we had some financial issues with the business and there wasn’t enough money to cover the payroll. We ended up owing th payroll company around $7,000 for the checks that cleared. We knew about it and told the payroll company we will pay them separately for it. They continued to do our payroll but all the checks being issued from then on are coming out of our own business account. They also deducted money for taxes and their fees. All our bank statements and payroll reports indicated what the money they were taking out was for. The business closed end of March. We got a surprised visit from the IRS last November that we owed about $10,000 in payroll taxes which we know couldn’t be right because we have records that all payroll taxes were paid and money deducted from our account. I called tha payroll company and they said that because we owed them money, they decided to take the money for taxes and cover what we owed them. We did not know about that. Although I understand their point of view, I feel that they should have told us that they were not paying the payroll taxes. We ended up owing interest and penalties to the IRS. They also should have documented what they were doing because all our papwerwork shows that they were deducting money for our taxes and it all cleared. I asked them to send me documentations for our meeting with IRS after they explained to me what they did. They did not send me anything after they promised to do so. The IRS agent told us there’s nothing they can do about them and it’s between us and the payroll company. I don’t know if we should take some legal actions. Even though I undestand them, they put us in a bad position that’s causing us to be personally liable instead of the corporation. We lost everything we have from the restaurant, now this.
This is a small firm. We have no signed contract with them, we carried them over from the previous owners of restaurant. They did say that they will handle if there’s any problem with the IRS (??)
Tags: accnt, Bank, Company, deducted, from, indicated, Money, Payroll, shouldn't, taxes, they
Comments (5)
The payroll company is entitled to have their payments on your behalf covered. You would not find a sympathetic jury.
I would go back and read the original contract you signed with the payroll company. Look at the details about what happens if you can’t cover the checks they issue.
If you were dealing with a major firm like ADP or Paychex I suspect they did what the contract allowed them to do. If you are dealing with a small local firm check the contract and call your lawyer.
From the IRS point of view, if they can get money from you, why bother pursuing the payroll company? You owe the taxes regardless of what the payroll company did, so the IRS is pursuing you.
Note: did you ask for a penalty abatement? Request one, in writing, giving your reasons (thought payroll company forwarded taxes; paid tax due, etc.). The IRS doesn’t have to give a penalty abatement, but will if the agent/officer deems it a “reasonable cause.”
Depending on what EXACTLY was spelled out in your contract, you may or may not have a case against the payroll company. If they just decided not to forward the payroll taxes, they could be liable. If it was spelled out in their contract that that is what they’d do, you are out of luck. Best have the eyes of a lawyer-type person look over the contract.
If you owed them, why didn’t you pay them? All this would have been avoided.
However, if the records show that they withdrew funds from you business accounts to pay for taxes and they in fact paid themselves then they have committed a crime. But, if your contract allowed for them to do this, the you are screwed.
ultimately, you owe both.
I’ll wager dinner at Spago that your contract with the payroll company stipulates that if you are in the red with them, any funds will first be applied to your debt with them. If you purchased the business the agreement signed by the former owner carries over to you. This was an issue of due diligence that you should have pursued before you bought the business so you would at least have been aware of the terms.
The IRS has no dog in your fight with the payroll company. YOU owe the taxes and YOU must pay them. You may have a case for abatement of any penalties and should certainly ask for that, especially if the IRS is hitting you with the 100% Trust Fund penalty. But the taxes themselves and any interest must be paid in full by you.