When new software for analyzing EFTPS transmissions is in place, the IRS will issue an alert within 72 hours of a missed employment tax deposit, an IRS official said at a recent tax conference. Once the final system is in place, the IRS is likely to send enforcement staff to your door soon after the alert. The staffer will point out the missed/late payment, explain the consequences of missed deposits, and offer you help. This "pre-enforcement" visit will run 45 - 60 minutes.
Thus, the IRS is upping the ante from the previously announced combination of emails and automated phone calls. Now it will visit in person if the employer does not respond to the alert. The IRS believes that the early visit will result in much more effective payroll tax compliance in most cases than waiting until after a quarterly employment tax return, by which time the employer nay already be several months or more in arrears.
Still more aggressive enforcement will be implemented more quickly if timely payments are not made after the visit -- such as seeking a court injunction that required an employer to make timely tax deposits in full. Once an injunction is in place, if there is a missed or late payment or other violation, the IRS can ask the court to find the employer in contempt. A contempt citation would give the IRS and court a wide range of options: requiring the employer to post bonds or obtain IRS approval before making any expenditures, and other restrictions. In serious cases, a receiver could be appointed over the business.
In the worst cases -- a responsible person is notified of employment tax requirements and does not respond, an owner used employment tax funds for personal expenditures, a responsible person has used tax deposits to keep a business operating over several quarters or a large deposit is not made -- the IRS could seek criminal contempt and possible jail time. Alert: In a new wrinkle, the IRS official said that classifying workers who are employees as ICs might lead to criminal action -- e.g., owners notified by the IRS that they have fallen behind on tax deposits convert all their workers to ICs to get our of paying employment taxes.
Tip: The IRS plans to use even more resources to ensure payroll tax compliance because 60% - 85% of annual tax revenue is from employment tax deposits, which include employer payroll taxes and withheld employee FIT. So the IRS has a huge incentive to get in touch with you if you are even a little late with a deposit, or even worse, miss one.