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IRS Has a New Program to Help Employers Stay on Top of Payroll Taxes

By Jonathan R. Tung, Esq. on December 11, 2015 | Last updated on March 21, 2019

Few people or companies jump at the chance to interact with the IRS. But the latest initiative by the tax-levying agency actually sounds like it has some promise.

On December 8, the IRS announced the launch of Early Interaction Initiative, a program designed to notify employers who may be falling behind on payments of their employment taxes.

Falling Behind on Employment Taxes

One of the more egregious tax offenses committed by employers is a failure to pay their own portion of employment taxes. It's equally bad when employers fail to account for and keep current on the taxes of income withheld from their employees, known generally as "trust fund taxes."

The usual fact pattern goes something like this: the employer hits hard times and uses the withheld employee income to help it weather the storm. Business does not improve. Meanwhile, the employer finds himself in arrears. In a twist of the knife, the IRS considers "responsible persons" on the hook for the violations -- including officials, directors and shareholders. There are numerous cases where failure to pay payroll taxes has landed business owners in jail.

How the IRS's New Program Is Supposed to Work

In theory, the program is designed to notify employers that something is amiss when they appear to be falling behind on their tax payments even before the quarterly employment tax forms (Form 941) are filed. Although the taxes can be paid in a single lump sum, the IRS will track the payment patterns based on employers who tend to pay the taxes over the course of months instead of all at once. Employers who look to be falling behind will be contact by the IRS...hopefully in way that doesn't cause employers to start hyperventilating.

What In-House Should Do

First, advise against panic. Receipt of IRS notification probably just means that it's time to put in the latest payment of employment taxes to the IRS -- crisis averted. If anything, in-house lawyers can probably even see this as something of relief: fewer things to clog up the schedule.

Of course, however, there is another angle. This obviously means that the IRS wants to send the message that they're watching you. 

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