IRS Launches Early Interaction Initiative

Author: Marta Moakley, XpertHR Legal Editor

August 27, 2015

The IRS has launched an Early Interaction Initiative, aimed at helping employers understand and meet their payroll tax responsibilities. The initiative, which is geared toward small businesses and the self-employed, may help reduce employment tax delinquencies, along with interest and penalties, which may accrue as a result of an employer missing required payments.

The initiative will accelerate current processes to help ensure a timely resolution of any missed tax payments. Specifically, the IRS is adjusting its systems to issue Federal Tax Deposit Alerts (FTD Alerts) as soon as possible. In addition, IRS Collection's field staff will be assigned more cases and will be able to process FTD Alerts more quickly.

FTD Alerts signal that an employer's payroll tax deposits have declined. Collection field staff will target cases with preexisting delinquencies first. If an employer offers an explanation for the decline in deposits (e.g., a reorganization), then the case will be closed. If a site visit is not possible due to limited resources, the IRS may issue a letter to the employer:

  • Stating that employment tax deposits have decreased;
  • Explaining the legal consequences of delinquency and detailing available resources; and
  • Requesting an employer to contact the agency.

One of the stated purposes for the initiative is to advise and warn employers that are facing liquidity difficulties about the risks of using monies withheld from employees' pay for other business purposes. Although employment taxes withheld from employees' pay should be held in trust until the employer is required to deposit them, an employer may feel pressured to use these funds as working capital in the event of a shortfall. Often, the diversion of funds quickly pyramids and becomes a liability beyond the ability of the employer to repay.

Employers are not the only ones facing risks when missing employment tax payments: current or potential creditors may not have information regarding the pyramiding employment tax delinquencies and therefore may continue to extend credit without knowing the true risk of their investment.