Hunting Season Feds try to protect the little guy from payroll tax predators.

You hire a payroll firm to take care of paying employment taxesto the IRS. You send them the money, and they pass it on to thefeds. Right? Well, not always. Therein lies the genesis of Sen.Olympia Snowe's (R-ME) amendment to the Tax Administration GoodGovernment Act (H.R. 1528), which passed the Senate in May. Theamendment gives the IRS tools to go after payroll/accounting firmsthat steal a client's employment tax payments, and protectionto firms that hire those rogue firms.

In the first and, so far, last instance of the IRS and theJustice Department taking a payroll company to court, a federalcourt in Salt Lake City issued a preliminary injunction in April2003 appointing a receiver to shut down a company called ProvidentManagement Group. Provident allegedly failed to file at least 282federal employment tax returns for their customers, and failed tomake more than $2 million in required employment tax deposits ontheir behalf.

The amendment identifies payroll agents as "responsiblepersons," which will enable the IRS to assess 100 percent ofpenalties against those firms. By giving the IRS such authorityagainst the payroll agents, the IRS would not automaticallyreassess the taxes due against the small-business taxpayer, whichpaid what it thought was its payroll tax obligation in good faith.The amendment would also require any payroll agent who collects andagrees to pay withheld payroll taxes to register with the IRS.Agents would also have to be bonded so there would be insurance forpaying these payroll taxes should these agents breach theirfiduciary duties and fail to turn the client's tax paymentsover to the government.

Stephen Barlas is a freelance business reporter who coversthe Washington beat for 15 magazines.