Part of running a business in Southern California is meeting one's payroll tax obligations to the Internal Revenue Service. When times are tough, the money may not be there to satisfy one's tax bill, and that is when the IRS may take action. At first, the agency may assess penalties and interest against the debt owed, which can grow the balance substantially.
In time, the IRS may place a lien on the business's property and assets. This gives the IRS the ability to receive money from the sale of the asset to put towards the payroll tax debt. A lien does more than impair a business's ability to reap profits from the sale of assets, however. Creditors can find out about the existence of liens, which can harm a company's credit rating.
These are powerful enforcement tools, but the IRS does not have them at their disposal when the entity owing payroll taxes is a federal agency. According to a recently released report by the Treasury Inspector General for Tax Administration, the IRS has a limited number of arrows in its quiver to encourage federal agencies to comply with payroll tax laws.
By the close of 2011, federal agencies owed an estimated $14 million in back payroll taxes. Seventy agencies' tax debts contributed to that total. But according to the IRS, the problem is improving. In 2005, federal agencies had a $406 million tax debt. In some cases, the agencies paid the debts, but in others the IRS stopped pursuing agencies because there was a low likelihood that they would be able to pay.
The IRS said that it would move to follow some of the recommendations made in the TIGTA report. In addition, the agency said it remained committed to promoting compliance with payroll tax withholding laws among federal agencies.
Source: The Washington Post, "Some federal agencies delinquent on payroll taxes," Eric Yoder, Sept. 28, 2012