Here is one unfortunate story of many that happened to a company filing its tax returns. We hope you can learn from it so it does not happen to you.
What Happened?
A few years ago, the company hired a third-party service provider to file its Form 941 tax returns (a tax form used to report employers’ payroll remittances with the IRS).
The service provider filed an inaccurate return that reported a large refund of payroll taxes instead of an amount owed for the reporting period which would normally be expected.
The IRS automatically processed the refund and issued a large check to the client. Although the service provider corrected the error by filing an amended return, they failed to inform the company who remained unaware of the issue.
The company deposited the check without realizing the discrepancy. A few months later, the IRS processed the amended return, realized the error and requested the money back. At this point, the client had already spent the amount.
The IRS mailed notices to the company over several years in attempts to collect the amount, however, the company did not did not check its mailbox regularly, had changes in personnel and missed these notices. Meanwhile, penalties for late payment was assessed and interest was accruing on the significant sum.
Now, several years later, the company has become aware of the problem and must repay the amount (which has grown 30% from the original amount due) during a time when it faces a cash shortage. Balance has been engaged by the company to help understand the notices, to assist in requesting an abatement of the penalties and to work out a payment plan with the IRS, a process which is complex and will take much time to resolve.
Takeaways - What we can learn from this
Insist on communication with your service providers and updates of any non-routine issues. The service provider should have let the client know about the erroneous and corrected 941 returns.
Review every tax return or report carefully and make sure it makes sense. Do not file or cash checks blindly. In this case, the client should have noticed the unusually large refund check and asked questions.
Companies should regularly check their mailboxes to avoid missing important notices, which may have prevented the accrual of significant interest.
Check your accounts with the IRS or other tax authorities regularly to ensure you are and remain in compliance and good standing.
We, at Balance, can help if you have questions about this story or issues related to tax, accounting and finance. Book a free consult here.
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