You want to tick off the IRS?

Don’t pay your tax bill.

That’s really the easiest way to get the wrath of this massive government agency to be directed upon you.

And, there’s really no excuse. Especially with the new rules.

As long as you don’t owe the IRS a penny over $ 50 K, you can request a payment plan.  And, they really have to accept it.  (Note:  The $50 K includes penalties and interest.  If you owe $ 50 K in taxes, then you probably owe more than $ 50 K.)

Assuming you have a bank account, you can file form 9465 (Installment Request), and pay down the bill over time.  (I last wrote about this provision when the maximum debt limit was $ 25 K.  Now, it’s $ 50 K, but the rules are the same.)

(If you don’t have a bank account, the fees are higher and the IRS will lean a littler heavier; they prefer being able to zap your account automatically on the day of the month you choose (any day from 1 to 28; the 29^th to 31^st don’t work because some months don’t have those days.)

And don’t try to be a wise guy, suggesting that you’ll pay them $ 25 a month over 20 years.  There is a finite time limit to pay off your debt- about 6 years is about the longest the IRS will let you spread the payments.

But,that’s not the only limitation to getting your payment plan approved as this new case, Coastal Luxury Management v. IRS, will show.   (TC Memo 2019-43, 29 April 2019)  First, you should know this case is not about income tax debt.  It’s about companies that have failed to turn over the funds they’ve withheld from their employees’ paychecks.  This liability, by the way, is the one way the IRS can pierce a corporate veil.  Anyone and everyone who handles payroll for a firm that fails to remit payroll taxes is considered fair game by the IRS- not just the business entity.

After all, this is worse than not paying your taxes- it’s considered theft.  You took the money from your employees- money that you were supposed to hold in trust to remit to the IRS- and, then, didn’t turn it over to the IRS.

(This is similar to the way more than a few lawyers get in trouble, too.  They misuse the funds a client pays them (in advance) for fees and costs to prosecute their cases.  Instead of keeping those funds in a special trust account, they put them (or withdraw them to) their regular account.  The problem is that’s not the attorneys’ money until they’ve earned it by producing a bill.)

The IRS will arrange for a payment plan for “trust fund liabilities” only if these factors apply.

1. All outstanding employment tax forms (941 [quarterly withholding] and 940 [unemployment]) are filed.
2. The current quarter’s payroll taxes have been remitted in full.
3. The person(s) in charge of payroll, typically the firm’s executives, have filed Form 433-B [Collection Statement for Businesses, basically a confessed judgment detailing all assets and liabilities of the firm]. Moreover, documentation to support each of the statements (or assertions) on the 433-B must be included in the submission.
4. An installment agreement is requested in writing. (Typically, this means one files Form 12153, Request for a Collection Due Process or Equivalent Hearing, with the IRS.)  The installment amounts, the starting date for payment and frequency, and all the tax periods and amounts involved in the delinquency are detailed in that submission.
5. Any deadlines the IRS imposes for additional details or information to prove the assertions are met.

If you miss any one of these 5 conditions, your request is denied.

So, what’s special about this case?   Well, the firm owed $ 1.4 million, claiming it lacked the funds because an employee had sticky fingers (embezzled the funds from the company treasury).  The actual periods for which the firm had not paid the IRS included 2011 and 2012 for unemployment insurance [940], and Q3 2012 through Q4 2014 for payroll withholding [941].

But, the firm had NOT paid its current (Q3 2016)  tax bill when they filed their payment plan request.  (The attorney for Coastal Luxury claimed the IRS was not taking into account the “financial quagmire” the firm was in because of the embezzlement.)

Now, if you read what I wrote- that the IRS will deny the payment plan if ANY of the 5 conditions are not met- you won’t be surprised that the IRS denied the payment plan.  And, the Tax Court backed the IRS up.

Looks like any inventory for their food and wine festivals, any equipment the firm owns- and if that’s not enough, the executives possessions and bank accounts are now IRS possessions.

Caveat debitum!