My Quickbooks Desktop client makes scheduled payments against both federal and state tax settlements for a prior year. He has no record of the payroll liabilities for that year in Quickbooks. Since it will take him longer than 3 years to pay the settlements off, should I set these up as long-term liability accounts. If so, since there are no payroll liabilities in Quickbooks to apply these payments to and no associated loan funds, how do I account for them, i.e. what is my offset account? Thanks in advance.
So the big questions is how did the client run payroll? If using a QBs payroll service, then chances are the liability was also coded to payroll expenses. If using an outside payroll service that did not pay the taxes on his behalf, then the liability was understated, payroll expense was understated and payroll taxes were understated. You might have to amend the tax returns since it seems the client only accounted for net payroll amounts.
You may need to create a journal entry for the total liability and off-set my payroll expense (difference between net and gross amounts) and employer payroll taxes. With a journal entry, this will post on a cash basis. Then you have to deal with the penalties and interest which would be separate from the original amounts.