Is your business behind on EFTPS (Electronic Federal Tax Payment System) payments for federal employment taxes? If so, you may get an unexpected visit from an IRS Revenue Officer as part of the EFTPS Early Alert program being implemented in 2016. The visit will be unannounced and will occur before the employment tax return is filed or tax is assessed. Your late-paid electronic federal tax deposits will trigger an FTD alert that is shared with the IRS in June, September, December and March. This alert will be coded (A) or (B).
Code (A): Potential Pyramider: This code applies if the taxpayer has notices for late filed/late paid employment taxes for the prior two quarters.
Code (B): Potential Noncompliant: This code applies if the taxpayer is considered to be delinquent based upon historical payments and prior return history.
Upon receipt of an FTD alert, the IRS has 15 days to make initial contact with the taxpayer, preferably in the field. The purpose of the field visit is to educate the taxpayers on how to file and make timely federal tax deposits. The IRS Revenue Officer will explain the consequences of noncompliance. The trust fund recovery penalties are assessed to enforce delinquent employment taxes by assessing a taxpayer personally. Notices of federal tax liens, levies and seizures of assets could result.
Recently, a client of mine received an early intervention visit from an IRS Revenue Officer due to a late filed federal tax deposit. The client was kind enough to give the IRS Revenue Officer a tour of his business—describing the hardships the company was facing, such as aging accounts receivable; identifying the responsible officers in charge of the company; and informing the IRS Revenue Officer that next quarter would also be late paid. The Revenue Officer empathized with the taxpayer and said he wanted to help him.
Really nice guy, right? Think again. When I spoke to this Revenue Officer regarding the visit, the first thing he said was, “the owners should sell the Porsche and the BMW that I saw in the parking lot and pay the company’s employment taxes!”
The Officer also:
- Wanted the financial statements for the responsible officers filled out stating he would file a federal tax lien as soon as the Internal Revenue Manual allowed him to file it.
- Suggested that they obtain financing on the equipment that he saw at the location.
- Stated that the case would be entered into his queue of cases due to the information provided suggested that the taxpayer could become a potential pyramider, (i.e. (A) above).
A taxpayer may have good intentions, and legitimate reasons, to respond to the IRS Revenue Officer’s questions about why federal tax deposits are late, however, it is better to have your representative communicate directly with the Revenue Officer. The IRS will tell you that they are there to help you when, in reality, they are there to intervene early in order to prevent consecutive quarters of non-compliance. Although we share that same goal, sometimes taxpayers need a little time to get through cash flow fluctuations.
By providing information at an early stage, the Revenue Officer will be prompted to assess the value of the taxpayer’s assets, determine whether the noncompliance is likely to continue, identify responsible officers who might be personally assessed, request financial information to determine collectability and assist with enforcement action— should it become necessary. The information you provide could and will be used against you! There is no law that requires you to acquiesce to a surprise meeting with the IRS. So don’t!
What should you do if an IRS Revenue Officer shows up at your place of business unannounced?
Ask your receptionist to kindly accept the written correspondence being presented by the IRS Revenue Officer. Do not answer any questions. Call your tax practitioner immediately!