The IRS offers several programs to taxpayers with past-due federal income tax liabilities. The purpose of these various programs is to offer different strategies for taxpayers to resolve their tax liabilities based on their unique financial situation. Some of the most common programs are the Offer in Compromise, Installment Agreement and Currently Not Collectible Status. However, before the IRS will seriously consider these, or any other possible resolution, the taxpayer must be fully compliant with their tax obligations. For business taxpayers, compliance consists of two major components.
First of all, the IRS will require the business to file all past-due tax returns. Corporations will be required to file any missing or delinquent 1120 or 1120s tax returns as appropriate. Partnerships must file all of their 1065 tax return forms. In addition, any business with employees, must file all form 940 and 941 payroll returns.
Of these requirements, most businesses have problems with the payroll returns. Businesses are required to file one 941 for each quarter from the date they first start having employees to the date they last have employees. If the business does not have a payroll for one, or several quarters, during that period, the 941 must still be filed. Once the business no longer has employees a “closing” or “final” 941 must be filed indicating that the business will no longer have employees. The same requirements apply to 940 returns which are filed once a year, not quarterly.
The second requirement is that any open business with employees must be in compliance with its payroll deposit requirement. In most cases, the IRS will require the business to get and remain in compliance for two consecutive quarters before it will agree to the resolution of a federal tax collection issue.
It is important to keep the compliance requirement in mind as you prepare to resolve your past-due IRS tax liability.
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