Tax & Accounting Blog

New Requirement for Payroll Providers Who Collect or File Client Tax Returns

CS Professional Suite Payroll Solutions May 22, 2013

Over the past several years, the IRS has had problems with “reporting agents” or payroll providers who also collect or file tax returns. An increasing number of reporting agents have failed to file timely and accurate returns and failed to remit impounded payroll taxes. As a result, the IRS issued Revenue Procedure 2012-32 in mid-2012, and it went into effect November 19, 2012. If you are a reporting agent, you’ll need to comply with the new procedure. 

Are You a Reporting Agent? 

The IRS defines a reporting agent as follows: 

A reporting agent is an accounting service, franchiser, bank, or other person who complies with Revenue Procedure (Rev. Proc.) 2012-32 (Formerly Rev. Proc. 2007-38). The reporting agent may do one or more of the following: 

(1) Sign and electronically file Form 940,Employer’s Annual Federal Unemployment (FUTA) Tax Return; Form 941,Employer’s QUARTERLY Federal Tax Return. 

(2) Sign and file on paper (to the extent the IRS does not require filing electronically) Form 940 and/or Form 941. 

(3) Make federal tax deposits (FTDs) and other federal tax payments (FTPs) electronically via the Electronic Federal Tax Payment System (EFTPS). 

(4) Receive duplicate copies of official notices, correspondence, deposit requirements, transcripts, or other information. 

(5) Receive duplicate copies of official notices, correspondence, deposit requirements, transcripts, or other information with respect to FTDs and FTPs. 

How to Comply with Revenue Procedure 2012-32 

If you meet the IRS definition of a reporting agent, you’ll need to complete Form 8655, Reporting Agent Authorization, for each client for whom you plan to file a return. Further instructions can be found in Publication 1474, Technical Specifications Guide for Reporting Agent Authorization and Federal Depositors. 

You’ll also need to provide each client with a written statement clarifying that authorizing you as a reporting agent does not relieve them from any liabilities in the event that you fail to file a timely and accurate return. The statement should also encourage clients to enroll in and use the EFTPS to monitor tax payments. 

This written statement must be provided to the taxpayer at the time they enter into agreement with the reporting agent and at least quarterly for as long as the reporting agent provides services to the taxpayer.

The suggested language for the statement is as follows: 

“Please be aware that you are responsible for the timely filing of employment tax returns and the timely payment of employment taxes for your employees, even if you have authorized a third party to file the returns and make the payments. Therefore, the Internal Revenue Service recommends that you enroll in the U.S. Treasury Department’s Electronic Federal Tax Payment System (EFTPS) to monitor your account and ensure that timely tax payments are being made for you. You may enroll in the EFTPS online at www.eftps.gov, or call (800) 555-4477 for an enrollment form.” 

“State tax authorities generally offer similar means to verify tax payments. Contact the appropriate state offices directly for details.”

Practically speaking, all reporting agents should have provided their clients with a written statement no later than January 31, 2013 to comply with the first reporting period.

Non-compliance with the new procedure can result in the suspension of reporting agent status. If suspended, a reporting agent must provide written notification of their suspension from the Reporting Agent Program to each taxpayer in the program within 10 days from the date on the suspension letter.  

You can read the mandate in its entirety at http://www.irs.gov/pub/irs-drop/rp-12-32.pdf.