Tax News

CCH (cch.taxgroup.com) reports:

  "More than 1 million businesses are cheating on their payroll taxes to the tune of $58 billion," reported Sen. Norm Coleman, R-Minn., ranking member of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations. The July 29 subcommittee hearing coincided with the release of a related Government Accountability Office (GAO ) report, "Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617).". The subcommittee examined the magnitude of unpaid payroll taxes by businesses and the IRS's collection enforcement methods for unpaid payroll taxes.

GAO Analysis

  The GAO study revealed that, as of September 30, 2007, over 1.6 million businesses owed more than $58 billion in unpaid payroll taxes. The study also indicated that more than 70 percent of all unpaid payroll taxes are owed by businesses with more than four quarters of unpaid federal payroll taxes. Additionally, more than 25 percent are owed by businesses that have tax debts for more than 12 quarters, according to the GAO.

Lien Filings

  According to the GAO study, approximately $9 billion (of the $58 billion in unpaid payroll taxes) was in a queue awaiting assignment for collection action. Over 80 percent of payroll tax cases (as of September 2007) in the queue awaiting assignment did not have a lien filed. When a lien is not filed, the federal government's interest in the property of the tax debtor is not protected, Coleman noted.

  IRS Deputy Commissioner Linda Stiff admitted that the "queue is a weakness in the system."" "We have to identify actions so that taxes can be assessed and liens can be filed." Stiff told the subcommittee that she is working with the Service-Wide Employment Tax Advisory Council collections task force on how the IRS should handle the cases in the queue. Subcommittee Chairman Carl Levin, D-Mich., questioned whether there was any reason a lien should not be automatically filed in such situations. Stiff agreed that, under certain circumstances, a lien should be automatically filed.

Criminal Prosecution

  Voluntary compliance is not working, according to Sen. Claire McCaskill, D-Mo., based on her review of several studies on payroll abuse. "Individuals are purposely engaging in criminal activity because they know they can get away with it. If an individual has received notice after notice and still refuses to comply with the tax laws, I don't see why we need to a task force to tell us that." McCaskill emphasized the need for the IRS to focus on criminal prosecution for repeat offenders.

  Steven Sebastian, director, Financial Management and Assurance, GAO, testified that revenue officers have indicated that the IRS and the Department of Justice are reluctant to prosecute such cases in the criminal arena because prosecution is too laborious. Sebastian added that, in all of the studies he has participated in over the last few years, he continues to see repeat offenders flagrantly disregard the tax laws. Stiff agreed that individuals should be criminally prosecuted when warranted.

  By Chandra Walker, CCH News Staff

Opening Hearing Statement of Chairman Levin

Opening Hearing Statement of Ranking Member Coleman

Written Testimony of IRS Deputy Commissioner Stiff

GAO Report: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-617)

GAO Testimony: Tax Compliance --Businesses Owe Billions in Federal Payroll Taxes (GAO-08-1034T)