Los Angeles – Facing escalating penalties and potential enforcement actions, numerous restaurant owners in the Los Angeles area are grappling with years of unfiled tax returns, according to a local tax specialist. James Cha, a Certified Tax Solution Specialist, reports a surge in inquiries from business owners who delayed filing during the pandemic and now face mounting debts, and penalties.
The issue stems from a combination of economic hardship experienced by the restaurant industry – including rising food and labor costs – and increased scrutiny from tax authorities. Cha explained that the IRS has been leveraging technology to identify unreported income and is actively pursuing delinquent taxpayers, particularly in California. “The IRS has significantly increased its budget for enforcement, and they are focusing heavily on identifying and collecting from those who haven’t filed,” he said.
Penalties for failing to file and pay taxes can be substantial. According to Cha, a failure-to-file penalty of 5% per month accrues on unpaid taxes, up to a maximum of 25%. A separate penalty of 0.5% per month is charged on unpaid taxes, also capped at 25%. Combined, these penalties can reach 47.5% of the original tax liability. Adding California state taxes, penalties, and interest can dramatically increase the total amount owed.
Beyond penalties, the IRS has expanded its authority to enforce tax debts. Taxpayers with liabilities exceeding $10,000 are now subject to potential asset freezes, wage garnishments, and bank account levies. Cha noted a more than 10% increase in these enforcement actions in recent months. The IRS can also file a lien against a taxpayer’s property, potentially damaging their credit score and complicating any future sale of assets.
For restaurant owners facing these challenges, Cha recommends immediate action. “The first step is to file the delinquent returns, gathering all available documentation and maximizing legitimate deductions.” He outlined several options for addressing outstanding tax liabilities, including offering a compromised settlement based on verified financial hardship, negotiating an installment agreement to pay off the debt in manageable monthly payments, or requesting penalty abatement under specific circumstances.
In cases where taxpayers are already subject to enforcement actions – such as bank levies or wage garnishments – Cha advises filing a request for relief. He also emphasized the importance of seeking professional assistance. “Running a business can lead to unintentional tax errors. It’s crucial to perform with a tax professional who specializes in resolving these issues to navigate the complexities and achieve the best possible outcome.”
Cha’s firm can be reached at (213) 234-5580.