Overcoming Failure to Pay Employment 941 Taxes

Installment Agreements and Settlements – Offers in Compromise

Over the course of years representing various businesses, I find that one of the areas which gets small to mid-sized businesses, and sometimes large businesses, in significant difficulty is failure to pay employment taxes, known as 941 taxes. When businesses become financially stressed, it is very easy to fail to either file or pay 941 withholding taxes. The Internal Revenue Service doesn’t start sending notices for six months to a year after you fail to make a deposit and generally doesn’t take any significant enforcement action for eighteen months or two years. While the taxpayer/company believes it will straighten out its financial problems by basically taking a “loan” from the government by not filing or paying its 941 taxes, it is simply getting itself into a virtually irreversible problem. There is a failure to file penalty, a failure to deposit penalty, a failure to pay penalty and an interest calculation, all of which adds a very significant amount to the actual amount of the tax withheld. Dependent upon the length of time that this matter continues, the increase due to penalty and interest can be anywhere from sixty to eighty percent of  the tax that should have been withheld and paid to IRS. The taxpayer, when contacted by the IRS, frequently starts paying on the arrearage but can’t both stay current and make payments. That is the worst thing that can happen as new penalties are now incurred on the current taxes which are not getting deposited, filed or paid. We have had significant success in working out installment payments and/or Offers in Compromise which are based on the taxpayer’s ability to pay while requiring them to stay current in order that no additional penalties are incurred.

The IRS may issue what is known as a 100% penalty against the individual who is determined to be the responsible party for not filing, depositing or paying the 941 taxes.The shareholders, officers and/or people who were check signatories are the individuals that IRS will look to for payment. The 100% penalty is 100% of the amount withheld but not paid over. It does not include the penalty or interest. An Offer in Compromise is generally most effective after the individual is personally assessed, although it is very helpful if we get involved prior to the assessment. These settlements are based on the taxpayers financial status and ability to pay, not on the amount owed.

We have had significant success with Offers in Compromise for the individual taxpayer who has been assessed. Examples are as follows:

McNamara - IRS Blog Chart


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