This story appears in the
September 2004 issue of
Entrepreneur.
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You hire a payroll firm to take care of paying employment taxes
to the IRS. You send them the money, and they pass it on to the
feds. Right? Well, not always. Therein lies the genesis of Sen.
Olympia Snowe's (R-ME) amendment to the Tax Administration Good
Government Act (H.R. 1528), which passed the Senate in May. The
amendment gives the IRS tools to go after payroll/accounting firms
that steal a client's employment tax payments, and protection
to firms that hire those rogue firms.
In the first and, so far, last instance of the IRS and the
Justice Department taking a payroll company to court, a federal
court in Salt Lake City issued a preliminary injunction in April
2003 appointing a receiver to shut down a company called Provident
Management Group. Provident allegedly failed to file at least 282
federal employment tax returns for their customers, and failed to
make more than $2 million in required employment tax deposits on
their behalf.
The amendment identifies payroll agents as "responsible
persons," which will enable the IRS to assess 100 percent of
penalties against those firms. By giving the IRS such authority
against the payroll agents, the IRS would not automatically
reassess the taxes due against the small-business taxpayer, which
paid what it thought was its payroll tax obligation in good faith.
The amendment would also require any payroll agent who collects and
agrees to pay withheld payroll taxes to register with the IRS.
Agents would also have to be bonded so there would be insurance for
paying these payroll taxes should these agents breach their
fiduciary duties and fail to turn the client's tax payments
over to the government.
Stephen Barlas is a freelance business reporter who covers
the Washington beat for 15 magazines.