Yesterday the Pennsylvania Department of Revenue sent a collection agent to the business office of a local client over a $294 shortage of payroll tax withholding in 2011 through 2014 where the state then added over $750 of interest and penalties. The total bill with interest and penalties is a little over $1100. The business only has one employee, an office manager, besides the owner who is usually working from the road. The office manager is a kindly woman in her 60s who works alone handling the business paperwork and customer service calls. I imagine she was a bit shaken up being visited by a Revenue Department collection agent. One in four businesses faced some type of payroll tax penalties under older service providers so there is nothing unusual about this situation. It is not normal, in my experience, to send a collection agent out over such a small matter. Such action is simply a waste of agency resources.
I first became involved with this client in 2015 and immediately upgraded their payroll service to one that does not make these types of errors (and takes responsibility if they do occur). There were numerous prior period errors under the prior accountant and it is taking a while to work things out. Local court just issued a judgement against the prior accountant last week but, even so, the amount of the award appears to be less than 10% of the total penalties assesses against the business for all federal state and local tax screw ups. While the accounting cleanup process is moving slowly, it will all be worked out eventually. It is ridiculous that such a small accounting error winds up quadrupling the total amount due, but that’s just the way the tax system works.
The primary real life take home lesson for business owners that we see demonstrated again and again is that when your accountant screws up, it is still your problem.
The secondary lesson is that the business world is becoming a less civil and more hostile place, especially with regard to tax enforcement. The Department of Revenue could have initiated a phone call to me or to the business. They have this information from recent filings. It is ridiculous to chase down and intimidate an established taxpayer in this manner for an accounting error less than $300 over four years. Keep in mind this is a business that regularly pays its wage taxes and gets it right most of the time. We are not talking about tax criminals. Yet here we are. This actually happened.
Moreover, I strongly suspect we will see more examples of this type of unreasonable collection behavior by tax authorities in the future. As a side note, next year the IRS begins using private debt collectors and I can only presume that uncivil collection behavior will become more commonplace.
(I learned of the event after business hours but I immediately emailed the agent and will follow-up with a telephone call on Monday. My client felt relieved by the fast response).
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