5 Elements of Tax Compliance

For many businesses, tax compliance is not an issue that only comes up once a year. When you need IRS tax lawyers, rely on us today.

For many businesses, tax compliance is not an issue that only comes up once a year. Rather, for these businesses, tax compliance is a full time job for the business’ IRS tax lawyers and accountants. According to the IRS, tax compliance has three dimensions – filing, payment, and reporting. In other words, in conducting an audit, the IRS asks three questions:

1. Did the business’ filings meet IRS regulations?
2. Did the business’ payments meet IRS regulations?
3. Did the business report its activities properly according to IRS regulations?

These questions may seem simple, but they involve a complex set of issues. IRS regulations are so voluminous and complex that often a tax consultant must interpret them for filers. Moreover, the interpretation of these regulations often depends on tax court precedent. Thus, IRS tax lawyers may be needed to even understand what these regulations require. Here are five examples of tax compliance issues that businesses should consider:

Deadlines

An undercurrent to the IRS’ approach to tax compliance is whether its deadlines were met by the business. Businesses and business owners often have many different due dates for filings, deposits, and payments.

For example, income tax withheld from employee paychecks must be deposited on a specific schedule. However, the schedule is determined by the pay period used by the business as well as the amount of tax liability reported in the previous tax year. Needless to say, a business will often need to look to IRS tax lawyers to help figure out the deadlines for depositing withheld taxes.

Similarly, most C-corporations and owners of S-corporations pay estimated taxes on a quarterly basis (every three months). Tax advisors can determine which schedule applies to a business’ filings and payments to ensure that IRS deadlines are met.

Documents

If there is anything the IRS is known for, it is paperwork. Documents must be collected from new employees, like elections for withholding and copies of each new employee’ identification and social security card. Conversely, when a contractor is hired, a completely different set of documents, namely a W-9, must be collected. When tax season rolls around, W-2s must be distributed to employees and 1099s must be distributed to contractors. And this is just the beginning. Different forms are used for partners and owners than employees. A business does not need to have highly complicated dealings to have need of a tax professional, such as IRS tax lawyers and accountants, to ensure that all the correct documents are distributed.

Record Keeping

Maintaining records is important in two respects. First, knowing what needs to be recorded and how to record it will help a business’ tax professionals prepare filings and ensure that the correct information is provided to the IRS. Second, if there is an audit or other tax problem, having the right records can create the paper trail needed for IRS tax lawyers to overcome the issue or explain how the issue was inadvertent rather than deliberate.

Filing and Reporting

The big rush that occurs every April 15th is a product of tax compliance. Specifically, all tax payers (including businesses and business owners) who operate on a tax year ending on December 31 must file a tax form that reports all the tax payer’s taxable activity for the prior year. Encompassed within this requirement is that the correct form is filed and that the correct activity is completely and accurately reported.

Payments

As noted by the IRS, compliance in filing and reporting may be necessary, but the IRS always wants to make sure the right payments are made. The price of underpaying the IRS can be high. The IRS is entitled to assess penalties plus interest when an underpayment has been made. Moreover, deliberate tax avoidance can be the subject of a criminal prosecution, which could result in fines and imprisonment.

Even when an underpayment is unintentional, the IRS has many tools at its disposal to collect, such as garnishing wages, levying bank accounts, and placing liens on property. Avoiding this situation by consulting IRS tax lawyers concerning tax strategies is much easier than being subjected to IRS collection.

In sum, the role of IRS tax lawyers in tax compliance can take many forms, including determining deadlines for filings, deposits, and payments, guiding businesses in distributing and collecting the correct forms, creating and maintaining its records, and meeting filing, reporting, and payment requirements.