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Payroll tax problems, part 2: IRS trying to flag noncompliance sooner

In part one of this post, we began discussing the challenges you can face as a business owner if you fall behind on your payroll taxes.

If your business runs into cashflow problems, it can be tempting to dip into the money you withheld from employees' wage for payroll taxes. This may seem like merely a loan to you, but not paying over the money to the IRS can get you in serious trouble.

In this part of the post, we will elaborate on the IRS's efforts to detect noncompliance with payroll tax obligations more quickly.


The IRS is also working to set up a system to flag unpaid employment taxes sooner. The agency's intention is to do this by using the existing system used for electronic payments.

That system is called the Electronic Tax Payment System (EFTPS). The IRS plans to program it to spit out notifications of missed employment tax payments within two-to-three days (no more than 72 hours) of a missed payment.

It isn't that the IRS is merely waiting to pounce on a taxpayer who receives one of these automatically generated notices. After all, the IRS does not only enforce tax law; it is supposed to help taxpayers comply with the requirements.

And so the IRS is working on developing a predictive tool that will enable it to engage in the type of contact most likely to encourage a taxpayer to resume compliance despite experiencing a missed payment.

One action the IRS might take is sending a written reminder called a 903 Letter. Or the IRS may have a revenue officer give you a call if you missed a payroll tax payment. And in some cases, the IRS may even have a revenue officer visit you in person.

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