IRS Reports Automatic Alerts for Missed Employment Tax Payments Already Improving Compliance

In a previous post, we discussed the improved automated system that the IRS implemented to issue more timely and accurate federal tax deposit (FTD) alerts to employers that may owe employment taxes at the end of a quarter.  FTD alerts are generated automatically by the Electronic Federal Tax Payment System (EFTPS) and notify employers of potential employment tax violations by comparing  employment tax deposits against those made during the same quarter in the previous year.  The IRS has improved the algorithm used to identify potential missed payments.   Previously, the system would not generate an FTD alert to the employer until the 13th week of the quarter.  The new algorithm allows the IRS to predict when an employer may owe employment taxes at quarter end, which will allow the agency to issue FTD three times during the quarter.  According to a director in the IRS Small Business/Self-Employed Division, Darren Gulliot, the IRS has been studying employers’ responses to certain types of IRS outreach, such as field visits, soft notices, and prerecorded messages, to determine the most effective types of outreach.  These combined efforts have resulted in a more than 50% decrease in the number of FTD alerts issued during the first three months of 2016 when compared to that same time period in 2015, and the alerts issued have become more accurate, meaning that fewer employers will receive FTD alerts, but the ones who do receive them will likely be liable for employment tax that quarter.

The IRS is modifying the system to notify the IRS of potential missed payments within 48-72 hours rather than 12-13 weeks under the current system.

 

IRS to Receive Automatic Notice of Missed Employment Tax Payments

March 7, 2016 by  
Filed under IRS

As of September 2015, unpaid employment tax reported on voluntary returns amounted to $59 billion, a number the IRS hopes to decrease by preventing employers from accruing the substantial employment tax deficits currently plaguing the system. Darren Guillot, a director in the IRS Small Business/Self-Employed Division, announced that the IRS intends to take a more “proactive” approach to employment tax situations, part of which will involve an update to the Electronic Federal Tax Payment System (EFTPS) that will enable the system to alert the IRS within 2-3 days after an employer misses an employment tax deposit. This change serves as an improvement to the current system, which can take over three months to notify the IRS of missed employment tax. By that time, a business has often fallen into significant arrears.

Employers who fall behind on employment tax payments and are identified by the new alert system can expect outreach to begin December 2016. The outreach will at first come in various forms, as the IRS plans to examine which forms of outreach are most effective and which employers will react more favorably. From a practical perspective, this represents a much needed and proactive compliance move. Taxpayers that fall into a pattern of nonpayment for trust fund taxes (e.g., payroll taxes, backup withholding, withholding under Chapter 3 and Chapter 4 of the Code) often are using the withholdings to pay other creditors. When this happens, personnel known as “responsible persons” under the law may become personally liable for the nonpayment of tax. By delaying contact with taxpayers regarding the nature of severity of the situation, taxpayers and those responsible persons who make these decisions often create financial burdens from which they may never recover.