From the field - an IRS story
I haven't shared stories of my accounting work before, but we're now in tax season, and our shared frenemy, the IRS, is at the forefront of many Accountant's minds. While I am an Artist, I am also an Accountant for the past 20 or so years and still do real deal accounting work!
So I thought I'd share a juicy, albeit tart and bitter tasting, story.
Several years ago, one of my clients merged their two non-profits into one, terminating one EIN and keeping the other. However, their staff at the time didn't update the tax ID's with the payroll company. This little oversight paved the way for a costly 6-year mess to ensue!
So 941's were filed under the terminated EIN for the next 2 years, but were paid by the newly merged entity with a different EIN.
I was lucky, or maybe unlucky, to discover this a couple years after the fact, when I came onto the scene and the IRS started sending letters for prior-year payroll taxes due, with stiff penalties and interest, adding up to a couple hundred thousand dollars. Yikes!
So I alerted the payroll provider and had them file amended 941's. But these were mysteriously never processed (or received?) by the IRS. With no responses and the penalties increasing, I then sent amended 941's myself, letters of explanation and requests for penalty abatements. I later found out that everything I mailed sat in an IRS service center for a couple of years and was never processed.
In a stroke of providence, another IRS letter was received a couple of years ago, regarding an unrelated matter, with the contact information of an actual IRS agent. So I contacted the agent, sorted out that issue, then had about a 3 hour conversation to unravel these other payroll tax issues, and we've since spent the past couple of years sorting out the multi-year 941, 940, 990 and W2's mess. He has been extremely helpful in a highly bureaucratic and slow-moving organization!
Long story short, the amount due has been whittled down to only about $15k in interest, which cannot be waived by the IRS. Meanwhile, last fall, a different agent somehow came into handling a portion of the case, and erroneously filed a federal tax lien against the defunct EIN, which showed up on a title search for a local government grant award of $2.5 million, which now cannot be paid out until the lien is released, further complicating matters. Thankfully, it's close to all being resolved.
Lesson = always keep good records! If I had not had very organized records of all bank statements, payments, payroll reports and tax returns, merger documentation, etc., it would have been nearly impossible to fix this and possibly have cost the organization over $2 million. Also, this highlights how important it is to have competent staff! A series of little mistakes over time can become very expensive.
Ahh, I feel like exclaiming: