To insure compliance with 940 and 941 payroll tax filing and deposits, the IRS announced on Dec. 8, 2015, an early notification program for potentially delinquent employers.
Many cash strapped small and medium businesses fail to file and pay income and FICA taxes withheld from their employees (trust fund taxes). Commonly, a struggling employer uses withheld taxes to pay other expenses, intending to pay the taxes in the near future. Unfortunately, if the financial condition does not quickly improve, the business will owe large tax bill. If several filing periods are missed, the situation can quickly snowball and become unmanageable. Furthermore, the business owners, officers, directors, shareholders or any other people in charge of payroll tax compliance may be held personally responsible and can even face jail time.
IRS will now attempt to curb payroll tax delinquencies by flagging at risk business even before the employment tax returns (Form 941) are filed. Under the new intervention plan, the IRS will monitor payroll tax deposit schedules to peg potentially delinquent employers. Selected “at risk” businesses may be contacted by the IRS.
Even with the severe budget cuts, the IRS is sending a message that it is on top of this serious delinquency issue. Preventive intervention by the IRS may help struggling business avoid escalation and consequences of this extremely serious tax problem.