In a notice posted on August 7, 2015 the IRS announced that the IRS Collection is launching an Early Interaction Initiative to make early contact with employers who may be falling behind on their payroll taxes. The goal of the initiative is to help employers understand and meet their payroll tax responsibilities, prevent missed payments from becoming delinquencies and delinquencies pyramiding out of control.
For many years, IRS Collection’s field staff has been assigned Federal Tax Deposit Alerts (FTD Alerts) where their records indicate that an employer’s payroll tax deposits have declined. These cases were sent to Field Collection staff near the end of the quarter but before the quarterly payroll tax return was due. Then as now, the goal was to meet the employer, determine whether there was a missed payment or delinquency, and if so, help to get it paid and the employer to sustain payroll tax compliance.
The Early Interaction Initiative will accelerate and enhance the FTD Alert process. IRS Collection’s work plans have been adjusted to allow field officials to work more FTD Alerts more quickly.
IRS does not have the resources to visit every employer whose payroll tax deposits decline. So many will receive a letter saying that the IRS has reviewed their federal payroll tax deposit history and their deposits appear to have decreased. The letter will ask the employer to contact the IRS, by letter or phone, and help the IRS Collection to understand 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.
Other FTD Alerts will be assigned to Field Collection with priority given to cases where the employer has preexisting delinquencies. The number of cases assigned to Field Collection will increase under the early interaction initiative. Where the employer has an explanation for the decline in payroll tax deposits, a cut in staff or a reorganization for example, the case will be closed. 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.
Finally, IRS is currently adjusting systems to monitor federal payroll tax deposits to get FTD Alerts out even more quickly. The sooner a potential problem is identified the better the chances it can be successfully addressed and corrected for both the employer and the IRS.
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. When FICA taxes are not deposited, the Social Security and Medicare trust funds suffer. When withheld income taxes are not deposited, the employees still get credit for those “withholdings” on their tax return, and will get their benefits later by proving the withheld amounts, and the rest of the American taxpaying public effectively makes up the difference and pays for their refunds and benefits.
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. The reason for the advice and early alerts is that missed payments mount quickly to employment tax delinquencies, along with interest and penalties, which accumulate or pyramid beyond the ability of the business to repay the amounts owed.
Businesses, especially when encountering liquidity difficulties, may use monies withheld from employees’ pay for working capital or other purposes. This may be an innocent diversion of the employment tax funds initially but the withheld pay and matching amount owed quickly pyramid and become a liability beyond the ability of the employer to repay. By the time the employer, IRS, or other creditors realize the pyramiding condition, the options for repayment decrease and the viability of the ongoing operation comes into question. Due to privacy and disclosure laws, these pyramiding employment tax delinquencies are not known to the business community or marketplace, beyond IRS liens placed on business assets. Banks, suppliers, and others may, therefore, unwittingly continue to extend credit to the delinquent business without knowing their true repayment risk.
Applying the tax laws with fairness for all requires that the IRS address payroll tax delinquencies as soon as possible. This involves proactively precluding delinquencies where we can and keeping delinquencies to a minimum.
Employers who need information on how to comply with their payroll tax responsibilities are encouraged to explore the many resources on the IRS website, IRS.gov. A search on the phrase “employment tax” is a good start. More specifically, employers may want to visit any of the following IRS.gov pages.
What Are FTDs and Why are they Important?
Understanding Employment Taxes
Depositing and Reporting Employment Taxes
Employment Tax Publications
Small Business Taxes – The Virtual Workshop (video)
Learn more about Payroll Masters Full Electronic Tax Service
Want more info about this? Contact Payroll Masters.
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