By: Jim Otis, Otis | Atwell

The recent collapse of Harmon-Baert Associates (HBA) in Saco, Maine, has left many employers thousands of dollars in debt. Another payroll service embezzlement in 1996 hit employees in Maine for a total of $2.5 million. This is indeed a tragedy for the business community and reflects poorly on an industry that is comprised of dozens of honest, reputable payroll processing firms.

If you have a payroll service, what should you do now to protect yourself? Among the worst things to do is to overreact and eliminate outside service processing. For many businesses, outside processing is an efficient and cost effective means to handle a very detailed, compliance-sensitive business procedure.

For background, it is well established that employers are the responsible party even if a third party is performing the payroll processing and tax depositing functions. Furthermore, company owner or officers can be held personally liable for unpaid payroll taxes and related documents. Therefore, owners and/or managers should periodically review these critical aspects of doing business whether or not inside or outside assistance is utilized. "Due diligence" is the key!

To help protect you and your company, we suggest the following:

Maine law requires that payroll processors (1) provide new clients a copy of their required state regisration, and (2) give existing clients a renewal copy every other year. You should obtain a copy every year from your processor or the State Tax Assessor.

Obtain a copy of the payroll services certificate of insurance or bond and request documentation that the coverage applies to your firm. Be sure the processor's coverage continues.

Ask your payroll service to provide a copy of all Federal and State payroll tax forms as they are sent. There may be a fee but it's great insurance!

Contact the IRS in the 3rd week following each quarter and request a transcript of your records to determine timely and accurate deposit of taxes. To do this, call the Business and Specialty Tax line at 1-800-829-4933, the general IRS toll free number at 1-800-829-1040, or submit Form 4605T, "Request for Transcrupt of Tax Return" to the address shown on the form. Advise your tax professional of the "Practitioner Priority Serice: offered by the IRS. You are a Maine tax payer and if your tax practitioner needs more personalized help, they can call Adrian F. Gonzalez at 207-253-6443 (Maine). This service is a toll free, professional support line for all practitioners nationwide. This is the practitioner's first point of contact for assistance regarding tax payers' account-related issues. The number is 1-866-860-4259.

If you were a client of HBA and haven't yet been contacted by the IRS, you should call a special IRS number for HBA affected at 207-253-6402. The IRS has taken action to temporarily suspend all collection activity on HBA clients. When you talk to the IRS, verify that your address is correct, request a transcript of your account, prepare and send IRS any necessary returns that haven't been filed, request abatement of any penalties and ask for an appointment to discuss payment options, if applicable.

Before hiring a payroll firm, do your homework. Ask for references (and check them!), the state registration (Maine) and the insurance/bond information. Although most payroll firms will ask for a power-of-attorney release from their clients, be sure to obtain assurance that any notices or information from tax officials are sent both to the payroll firm and the client. If you stop receiving copies of notices or correspondence, go on high alert!

Remember, just because you don't use a payroll service, you still need to be vigilant!

Get educated! The IRS provides a variety of free resources and information on paying and filing your taxes and tips for choosing payroll processing companies and tax professionals. Also, on 10/10/03, IRS issued and article, Outsourcing Payroll to Third-party Service Providers-Employers Responsibilities. You can view this article by clicking this link: Article. Of course, IRS provides a variety of free resources and informaiton at IRS, such as paying and filing employment and other taxes, IRS e-services for businesses and where to report suspicious tax fraud activity.

Jim Otis is a CPA with Otis | Atwell. Our firm specializes in the affordable housing and real estate industries. Jim received his M.B.A. from the University of Southern Maine and is a Certified Financial Planner.

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Please feel free to call or e-mail us if you have any questions regarding any type of tax issue.