Most businesses with which I am familiar, especially those of small to medium-size, are so caught up in day-to-day challenges that the only time they take a good look at the health of their business and the timeliness of the filing and payment of certain taxes and levies is when they review their annual statements with their accountants.
The way I advise my clients to avoid this so-common dilemma is to draw up a schedule that lists periodic reviews of the regulatory risks that face their business. Depending on the industry, a business can have few filings to make throughout the year or have a multitude of such filings. The penalties for not filing can go from a mild reprimand, to civil money penalties and finally to criminal penalties.
Following is a list of what I see are critical areas that should be addressed on an ongoing basis.
The businessperson must be aware of the timing and payment of federal, state and municipal taxes. Some companies have a computer program with automatic reminders of when these taxes are due. Obviously, not all companies need such a program, but every company has to and should list filing dates for such taxes.
The first tax that comes to mind is the Federal Income Tax. Payment due dates depend on the fiscal years chosen by the corporations or other taxable entities. Not all corporations are on a calendar year. Therefore, the due dates for the filing and payment of your company’s taxes will vary depending upon what fiscal years are chosen.
Besides the obvious due dates are important carryovers of certain tax losses and tax credits. Your company should maintain a schedule of the amount of such carryovers and the expiration dates that might apply to them. Obviously, the company’s accounting firm should be independently maintaining such a list, but the ultimate responsibility falls upon the taxpayer.
A brief example that I know of is a regional railroad that is publicly held and made improvements to its tracks and was writing off those improvements in a certain manner. This company has a national CPA firm that audits its books and was supposed to be keeping track of this very unique tax situation, vis-a-vis how to write off certain improvements to its tracks. The CPA firm unfortunately dropped the ball and the oversight was picked up by the IRS.
Amended filings with the SEC had to be made, as well as a formal announcement of the error. This was most embarrassing to the board members since there was absolutely no intent to mislead either the IRS or the SEC. The company now does its own internal monitoring to assure itself that all forms are properly and timely filed.
There is a plethora of regulatory forms, so I’ll just mention a few. The first thing that comes to mind is the annual filing that corporations must submit to the secretary of state’s office for the state in which they are incorporated. Though this filing is a relatively easy one to complete, the penalty of not filing can potentially cause the corporation to lose its charter and perhaps even the right to its corporate name. The sad thing about not paying attention to such a form is that it’s generally simple to complete and carries with it only a small annual fee.
Another important form is the payroll tax form. Not only should this form be timely filed, but also a check should always accompany the form. There is a so-called 100 percent penalty for not paying payroll taxes. Such a penalty is equivalent to the total of the past-due taxes, plus interest. This penalty can be assessed to not only the officers of a corporation but also to certain key employees who are responsible for such filings. I’ve always advised clients that even if they are unfortunate enough to find themselves on the brink of corporate bankruptcy, they must always find the resources to pay their payroll taxes in a timely fashion.
A regulatory form that your for-profit company does not have to file, but that can cost your business a good deal of money if the form is not filed, is the 501(c)(3) form. This form should be filed by not-for-profit companies in order for them to legally receive tax-deductible donations. Some corporations have found themselves in the embarrassing position of having to re-file their tax returns because a deduction taken by them was not allowed due to the fact that the charitable organization that received the money let its tax-exempt status expire. A brief quote from the IRS about this type of charitable organization says: “Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.” So, as if there aren’t enough things for a businessperson to worry about, if a company is donating to charitable organizations, it should determine that the recipient of such donations is up-to-date on its filings.
There are many other forms that can be listed, but they are too numerous to mention in this article. Suffice it to say that many of these forms are industry specific and do not apply to the average corporation. The best bet is to check with your attorney or CPA so as to obtain a complete listing of the regulatory requirements with attendant dates.
Keep on Top of the Obligations of Your Company
A good businessperson assesses not only marketing and competitive risks that his/her company might face, but also the regulatory risk of not filing certain forms and not paying any balance due on them in a timely fashion. It’s so much easier for a company to be up-to-date on all of its filings and requisite payments than to be caught in a bind for non-payment or non-filing. Such an unfortunate situation creates penalties from the taxing authorities and additional legal and accounting fees incurred to extricate your company from its tardy practices.
An ounce of prevention is truly worth a pound of cure and can save your company time and money by being compliant in the first place.