IRS to Explain the Nuts and Bolts to Delinquent Builders
The Internal Revenue Service is experimenting with a new way of doing business in hopes of solving an age-old problem: collecting taxes.
Starting this month, the IRS is launching a new educational program designed to help members of the most tax-delinquent industries avoid piling up more debt with the federal government.
The first industry that the agency is focusing on in Ventura and Santa Barbara counties is construction, whose members collectively owe about $53 million--mostly in unpaid employee withholding taxes--to the federal government.
Instead of performing countless audits, the IRS plans to work closely with construction contractors to avoid future delinquencies, according to Orlando A. Hernandez, a spokesman for the IRS Oxnard office.
“We’re taking a totally different approach,” Hernandez said. “Whereas we used to spend 80% of our time on enforcement and collection, we now want to spend 80% of our time educating the public. We’ve been doing audits for years, but they’re obviously not correcting the problem.”
The IRS is hoping to change that by educating private industry through seminars and informational mailings, Hernandez said.
“We feel if we can educate the taxpaying public on their responsibilities before they get into trouble, then we can better put a dent into the $53-million shortfall,” he said.
“It’s important to keep in mind that when these people don’t pay their taxes, the rest of us have to make up the difference.”
The local construction industry is the most delinquent, with 600 contractors in the two counties owing the IRS money, Hernandez said. Local businesses associated with real estate and finance owe $35 million and restaurants owe $15 million.
Hernandez believes the construction industry is so far behind in paying its taxes because of the economy. Contractors are underbidding on projects and then finding themselves in financial trouble, he said.
“After they pay their employees, their suppliers and their own bills, there’s nothing left to pay the government,” Hernandez said.
Jim Da Pra, president of the Ventura Contractors Assn., said underbidding occurs, but isn’t an excuse.
“A contractor may not have allowed enough money for a job, but Uncle Sam still gets his cut,” Da Pra said, adding that he welcomed the IRS’s new attempts to work with contractors.
“To hear the government say it’s trying to work something out [with delinquent contractors] provides a sense of relief to a lot of people,” he said.
A similar IRS program was started in Central California two years ago within the agricultural industry, which owed the IRS about $200 million, and now appears to be working, according to Mike Frates, an IRS compliance officer for the Central California District.
“Our objective was to start working in partnership with the industry and focus in on why people weren’t paying,” Frates said. “And it’s worked: 89% of the people who were previously noncompliant are now actively working on being compliant. Rather than chasing money, we’re changing behavior.”
More money is coming in and perceptions are changing, Frates added.
“We’re never going to be popular, but at least we can be viewed as reasonable and fair.”
