I am extremely skeptical of the IRS. And you better believe that I have every right to be! I've seen the IRS cause some truly horrible problems under the guise of "helping." They've trapped a whole lot of good people in faulty programs and they've also been known to lie in order to get what they want. So when the IRS comes out and says that they're going to help taxpayers, proceed at your own risk.
The following quote is lifted straight from an IRS press release:
"The IRS Collection division is piloting to make early contact with employers who may be falling behind in their payroll taxes. When it appears an employer may owe a balance at the end of the quarter, Revenue Officers will be in contact before the quarterly payroll tax return, Form 941, is due. The goal is to address payroll tax issues before they become unmanageable. Information on federal tax deposits is available in IRS Publication 15, Employer’s Tax Guide."
So what does the IRS Early Action Initiative entail?
In a revision to the earlier press release on August 7th, 2015, the newer August 21st press release describes how the Early Action Initiative will work:
"For many years, Collection's field staff has been assigned Federal Tax Deposit Alerts (FTD Alerts) where our 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. 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 they will receive a letter saying that we have reviewed their federal payroll tax deposit history and their deposits appear to have decreased. The letter will ask the employer to contact us, by letter or phone, and help us 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. "
Well, that's certainly something
You can call it whatever you want, but it seems to me that the IRS is still engaging in fear tactics. What was such a nice and happy, "We're just trying to help people not fall behind," quickly evolved into a threatening, "If someone is falling behind, we're going to remind them how bad the consequences are." As I said, the IRS has shown time and time again that they have a laser-focus on one thing – money. Come hell, high water, or a struggling business that leaves you unable to pay your employees and taxes, the tax man is going to collect.
My proposal to the IRS Early Action Initiative
All of the back payroll tax issues I have seen have involved one of two things: 1) employee embezzlement or 2) stomach-churning cash flow problems. For the first issue, a letter to the business owner could be intercepted by the employee embezzling – I'm not sure how the Early Action Initiative could help in embezzlement situations.
For the second situation, tight cash flow, I don't see a letter helping much either. Business owners don't want to lay off employees, so they keep going even though they don't have the cash to pay everyone. If they don't pay for their employees and supplies, they have no business. If they take the risk of shorting their payroll tax deposits, they are essentially taking a (guaranteed approved) loan from the government at an incredibly high interest and penalty rate, which makes the chances of paying it back less likely.
So how about the government sets up a loan program for business owners who fall behind on their payroll taxes? Doesn't that sound like a more practical and useful approach than sending them a letter? Wow! That actually helps businesses out of a tight spot instead of making it less likely that the business will be viable, forcing them to lay off staff, and then ensuring that they continue to owe the IRS a huge tax bill that will not be repaid.
Looking for help
I understand that my proposals stand little or no chance of actually happening; this is the world we live in. So in the absence of common-sense reform, we have to deal with the law as it is. If you find yourself struggling to pay your employees while maintaining your tax bill, know that you have options. And I am 100% certain that those options are a lot better than waiting for the IRS to send you a threatening letter. Visit our payroll tax information page to get a handle on some of the best ways to beat a payroll tax problem, or contact us to schedule your free consultation.
