In 2016, the IRS Collection Division launched its new program called the Early Interaction Initiative. The program’s goal is to stop employers from owing significant back payroll taxes.
If you have employees, then your business must withhold payroll taxes from your employees’ wages and salaries. These are known as trust fund taxes. Employers are required to withhold income and Federal Insurance Contribution Act (FICA) taxes from their employees’ gross pay. The monies are to be held in trust and remitted to the Treasury. The failure to comply with your federal tax deposit requirement will result in a serious tax problem.
Under IRC 6672, the IRS can assess the trust fund recovery penalty if you fail to remit payroll taxes. The trust fund penalty is a weapon Congress gave the IRS whereby the IRS can pierce through a corporation and assess corporate payroll taxes to individuals it deems responsible and willful. Additionally, under IRC 7202, the IRS can assert criminal penalties for the failure to make your federal tax deposits.
Often times, a payroll tax problem is the cause of an economic downturn of a business. In order to weather the storm, a business will use the proceeds withheld from employees pay for working capital or for other purposes to keep the business afloat. As a result, the back payroll taxes plus penalties and interest can mount quickly and pyramid into a large tax debt. The payroll Early Interaction Initiative is looking to stop payroll tax debt before it starts.
How does the Payroll Tax Initiative Work?
The IRS collection personnel use Federal Tax Deposit Alerts (FTD Alerts) to notify when an employer is noncompliant with their deposits. Employers withholding income taxes and FICA taxes from their employees’ paychecks are required to report those taxes quarterly on the Form 941. In the past, the IRS would begin an investigation after the delinquent business filed its Form 941. The goal of Early Interaction Initiative is to enhance the FTD Alert process by finding delinquent taxpayers before they file their Form 941s.
Once the IRS gets an FTD alert, it will send the taxpayer a letter or generate an automated phone call informing the business it has fallen behind on its payroll tax obligations. According to the IRS, the letter will advise the business of its payroll tax requirements and the consequences of not complying with those responsibilities. The letter will require a response from the employer.
If there is a reason for the decline in payroll deposits, for example a decline in the employer’s staff, then the case is closed. If the employer does not respond or have a valid explanation as to why the payroll deposits are down, then it will send a Revenue Officer to visit the business. A Revenue Officer is an IRS employee delegated with the responsibility to enforce tax compliance and collect back taxes. Where there is no explanation, the Revenue Officer will work with the employer to correct the delinquent condition and address the unpaid tax, penalty and interest.
Two-thirds of federal taxes are collected through the payroll tax system. The IRS has gone through a serious of budget cuts since 2007. As such, the IRS has lost out on collecting unpaid payroll taxes. The Early Interaction Initiative signals the IRS is having its depleted personnel focus on unpaid payroll taxes. If you or your business has received contact from a Revenue Officer or Criminal Investigator regarding unpaid payroll taxes, then your tax matter is serious. If the IRS deems you responsible or willful, then you can suffer serious financial harm or be prosecuted criminally. The Law Offices of Todd S. Unger, Esq. will defend you against the trust fund recovery penalty or criminal payroll tax prosecution. To resolve your unpaid payroll tax matter, contact Law Offices of Todd S. Unger today (877) 544-4743.