Ask The EDD Attorney – The New “IRS Future State” And The Push For Employment Tax Compliance Enforcement

By Robert S. Schriebman

May 19, 2016

Introduction

The IRS has a master plan in place that emphasizes future employment tax compliance enforcement. What is tax compliance? Tax compliance means that tax returns are timely filed and taxes timely paid. When it comes to payroll tax compliance the emphasis is not only on timely filing and timely payment but also the timely making of federal tax deposits. (FTDs).

This article will discuss new announcements by key IRS and the Department of Justice (DOJ) officials, working hand-in-hand to stop what has become a hemorrhage of employment tax non-compliance.

The American Bar Association (ABA) Webinar

In mid May 2016 the ABA put on a webinar entitled “Civil and Criminal Employment Tax Enforcement Efforts – Employers Beware.” On the panel of speakers was Acting Attorney General for Tax Administration, Carolyn Ciralo and Director of Field Collection Operations for the IRS, Darren Guillot.

The end of the fiscal year 2016 the IRS saw revenue of $59 billion in payroll tax withholdings. Almost 70% of IRS collection activity in the 2015 fiscal year involved the collection of unpaid employment and withholding taxes. These taxes include FICA, Medicare, and employee withheld income taxes. There are a lot of payroll taxes that are owed to the IRS but not paid. The amount has grossly increased in the past few years. Admittedly, there has been a shortage of IRS collectors as well as auditors. Most IRS collectors now have a heavy case load and are overworked.

One of the biggest problems facing IRS collection efforts for payroll taxes is the sad fact that it takes over 13 weeks for the IRS to get wind of specific employers who are not making timely federal tax deposits. This is unacceptable to the IRS Commissioner.

IRS Future State

To combat payroll tax non-compliance IRS Commissioner Koskinen has developed the “IRS Future State.” New state-of-the-art technology is being introduced to narrow the gap of information from 13 weeks to only 72 hours. There will be harsh penalties as well as enforced collection action in the form of levies and seizures. There will also be increased criminal action against employers who have traditionally disregarded their payroll tax duties. Traditionally criminal prosecutions for payroll tax crimes have been low.

Don’t Rely On Third-Party Payroll Companies

IRS Collection Director Darren Guillot pointed out in the ABA Webinar that taxpayers who outsource payroll tax compliance run the risk of exposure if the payroll tax company does not comply with the law. In previous articles I have written about payroll tax companies who misappropriate client funds and disappear into the night. The IRS and the EDD have little sympathy. You chose the payroll tax compliance company; in the end it’s your duty to see to it that they have been compliant. Eventually, there will be new tools that will help you perform due diligence to determine if your compliance company is properly doing its job. These tools will include the Dual Notice Initiative that will send dual notices of any change of address. In addition there will be enhancements to the Electronic Federal Tax Payment System that include inquiry PINs that you can use to determine if your taxes have been paid and your taxes and FTDs timely filed.

Increased IRS and DOJ Compliance Efforts

Both the IRS and the DOJ are going to get tough on those who do not take their payroll tax compliance seriously. Look for increased enforced collection action such as seizures of assets and bank account levies. There will also be increased Trust Fund Recovery Penalty (TFRP) activity combined with increased criminal referrals to the DOJ. According to Carolyn Ciraolo of the DOJ “The collective effort of the IRS and the Department of Justice are having a meaningful affect in the area.”

Conclusion

It has never been a good idea to play games with IRS or EDD payroll taxes. If the IRS is going to mount a campaign to get tough on payroll tax scofflaws, the EDD will not be far behind. The days of a kinder-gentler IRS and EDD are coming to a close.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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