A Hayward small-business owner or contractor often looks for a tax attorney once payroll taxes have fallen behind and the IRS has started to act: a lien filed against the business, a frozen bank account or a customer told to send payments to the government. A tax attorney in Hayward, CA helps owners understand their personal exposure and work toward releasing liens and levies.
If a levy has already hit your account or receivables, call (415) 754-0115 to schedule a free consultation. You can also describe the notice you received through our contact page.
How payroll tax debt snowballs
For a shop, trade or service company in Hayward's industrial areas or along the Mission Boulevard corridor, the pattern can look like this. A slow-paying customer or a lost contract leaves the business short. Payroll still has to be met, so the owner pays employees and delays the federal deposit, planning to catch up next month. Next month brings the same squeeze. Penalties and interest build on every missed deposit, and each quarterly Form 941 shows a growing balance.
Payroll taxes get special attention from the IRS because much of the money was withheld from employees' paychecks. The government views that money as held in trust, which is why collection can move faster and reach further than with many other tax debts.
The personal exposure: the trust fund recovery penalty
Withheld income tax and the employees' share of Social Security and Medicare are called trust fund taxes. Under the Internal Revenue Code, the IRS can assess a penalty equal to the unpaid trust fund amount against any person who was responsible for paying it and willfully failed to do so. That penalty is personal, so it can follow an owner even after the business closes.
Who counts as a responsible person
Responsibility depends on authority, not job title. Owners, officers, partners and sometimes bookkeepers or managers who could sign checks or decide which bills got paid can be considered responsible. Our article on the trust fund recovery penalty and responsible persons goes through the factors.
The interview and the proposed assessment
A revenue officer usually interviews potential responsible persons, often using a standard form of questions about duties and authority. The answers given in that interview carry weight. If the IRS decides to proceed, it sends a letter proposing the penalty.
The appeal window
The proposal letter generally gives 60 days to file a protest and request review by the IRS Independent Office of Appeals. Missing that window narrows the options considerably.
Federal tax liens on a Hayward business
A federal tax lien arises automatically once a tax is assessed, the IRS demands payment and the balance goes unpaid. To give public notice, the IRS files a Notice of Federal Tax Lien. For an individual or sole proprietor, that filing generally goes to the county recorder where the person lives; for a corporation or partnership, it generally goes to the California Secretary of State. The lien attaches to the taxpayer's property and rights to property, including equipment, vehicles and accounts receivable.
Ways to deal with a lien
- Release: the IRS must release a lien after the liability is paid or becomes legally unenforceable.
- Withdrawal: in certain situations, such as some installment agreements, the public notice can be withdrawn.
- Discharge: a specific asset can be removed from the lien, for example to allow a sale.
- Subordination: the IRS can agree to let another creditor go first, which can make new credit possible.
Levies on bank accounts, receivables and contractor payments
A levy is an actual seizure. Before most levies, the IRS must send a final notice of intent to levy, which starts a 30-day period to request a Collection Due Process hearing. That hearing is one of the most valuable rights a business owner has, because it allows collection alternatives to be raised before an independent officer.
For businesses, levies often hit the operating bank account or go directly to customers. A general contractor who receives a levy notice is required to pay the IRS instead of the subcontractor, which can disrupt cash flow on every open job.
Grounds for releasing a levy
Federal law requires the IRS to release a levy in several situations, including when the liability is satisfied, when release will help collection, when an installment agreement is entered into and the agreement does not provide otherwise, or when the value of the property exceeds the liability and release will not hinder collection. Our guide to releasing an IRS bank levy explains how requests are made.
Getting current and staying current
The IRS is reluctant to agree to any arrangement while new payroll deposits are still being missed. For an operating business, the IRS generally expects every current deposit to be made on time before it will negotiate the older balance. Common resolutions include an installment agreement, an offer in compromise in limited situations, or penalty abatement where there was reasonable cause. For a broader overview, see our guide to small business tax debt help.
California payroll taxes are administered separately by the Employment Development Department, which has its own collection tools, so the federal plan should account for any state balance as well.
Working with a tax attorney in Hayward, CA
The Somal Law Firm is the practice of attorney Bob Somal, Esq., based in Pleasanton and handling tax law matters, including IRS disputes and collections throughout the Bay Area, including Hayward, Castro Valley and Union City. An attorney can review your situation, communicate with the revenue officer, prepare for a responsible-person interview, request a Collection Due Process hearing and negotiate lien or levy relief. The first meeting is a free consultation.
Frequently asked questions
Can I lose my house over my company's payroll taxes?
If a trust fund recovery penalty is assessed against you personally, the IRS can file a lien that reaches your personal property, including a home. Seizing a principal residence requires additional approvals and is less common, but the lien itself can affect a sale or refinance.
Can bankruptcy wipe out payroll tax debt?
Trust fund taxes are generally not dischargeable. A Chapter 13 plan may allow them to be paid over time while the automatic stay pauses collection.
What if the business has already closed?
The business liability remains, and the personal penalty can still be assessed against responsible persons. Closing does not end the IRS inquiry.
Payroll tax problems grow every quarter they are left alone. Call (415) 754-0115 to schedule a free consultation with The Somal Law Firm, or reach us through our contact page with the latest IRS notice and the tax periods involved.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.