Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

New IRS initiative aims for earlier detection of potential payroll issues

Click here to view “IRS Collection Launches Early Interaction Initiative.”

In a recent e-News for Payroll Professionals, IRS’s Collection Division (Collection) announced a new program called “Early Interaction Initiative” (the Initiative). The Initiative is designed to help employers meet their payroll tax responsibilities and resolve issues before they become major problems for the business.

Background. Payroll taxes withheld from employees’ wages and salaries are a trust fund. Employers withhold income and Federal Insurance Contribution Act (FICA) taxes from employees’ gross pay and hold it in trust until required to deposit it, along with their share of FICA taxes, with the Treasury.

Businesses are informed about their employment tax responsibilities by IRS, SSA, SBA and others in the business community and marketplace upon their establishment and advised about the consequences of missing required payments.

Federal Tax Deposit Alerts (FTD Alerts) have been used by Collection’s field staff for many years. FTD Alerts notify Collection staff when records indicate that an employer’s payroll tax deposits have declined.

The reason for the advice and early alerts is that missed payments mount quickly to employment tax delinquencies, along with interest and penalties. Some businesses, especially when encountering liquidity difficulties, may use monies withheld from employees’ pay for working capital or other purposes, and the withheld pay and matching amount owed quickly pyramid and become a liability beyond the ability of the employer to repay—potentially jeopardizing the viability of the business.

New initiative. The Initiative will accelerate and enhance the FTD Alert process.

When an employer’s payroll tax deposits decline, IRS will send a letter stating that it has reviewed the employer’s federal payroll tax deposit history and noted a decrease. The letter will ask the employer to contact IRS and explain the reason for the decrease in deposits. In addition, the letter will remind the employer of their payroll tax responsibilities, advise them of the consequences of not complying with those responsibilities, and provide assistance to help them comply.

The number of cases assigned to Field Collection will increase under the Initiative. The case will be closed where the employer has an explanation for the decline in payroll tax deposits, e.g., a cut in staff or a reorganization. Where a delinquency exists, Field Collection will work with the employer to correct the delinquent condition going forward and address the unpaid tax, penalty and interest.

IRS is also adjusting systems to monitor federal payroll tax deposits to get FTD Alerts out even more quickly, as identifying a potential problem early increases the chances it can be successfully addressed and corrected.

References: For payroll taxes, see FTC 2d/FIN ¶  S-5500  ; United States Tax Reporter ¶  35,014  ; TaxDesk ¶  559,500  ; TG ¶  9110  .

Tagged with →