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Auditors get new marching orders for payroll audits

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in Office Management,Payroll Management

Outsourcing your payroll operations to a third party doesn’t get you off the hook for your undeposited payroll taxes, if your third party drops the ball. Problem: By the time an IRS auditor shows up on your doorstep, it’s too late to figure out what went wrong. While there’s nothing you can do once an auditor does come knocking, new guidance for auditors should make compliance easier in the future. (SBSE-04-0514-0036)

Take our advice, please. IRS auditors are now required to inform you to take steps to determine whether your filing and payment responsibilities are being met. If, for example, your service bureau or reporting agent prepares and files your payroll returns under your Employer Identification Number (EIN), the auditor will bring the following items to your attention:

  • You should verify that your address, and not the address of your third party, is the address on record with the IRS. Advantage: This ensures that you continue to receive notices regarding your payroll taxes. You can verify the address of record by calling the IRS Business and Specialty Tax Line at (800) 829-4933.
  • You can separately enroll in the IRS Electronic Federal Tax Payment System (EFTPS) to confirm that your payroll taxes are being deposited or use your IRS-issued Inquiry PIN to track deposits without enrolling in EFTPS.

It’s harder to keep tabs on a third party who files an aggregate Form 941 for all its clients under its EIN. You appoint these agents by filing Form 2678 with the IRS. Third parties are supposed to attach Schedule R to their 941 forms, so the IRS can identify each client’s payroll taxes. Warning: If Schedule R isn’t attached, the IRS considers that 941 form to be insufficient, and the statute of limitations will not start running. That’s bad news for you, since that gives the IRS much more time to assess payroll taxes against you.

Auditors are instructed to advise you to use due diligence when you request authorization from the IRS to appoint an agent on Form 2678 and to continue to use diligence after the IRS approves the authorization. Idea: An effective due diligence could be to ask the IRS to provide you with tax transcripts of your corporate account on a regular basis. File Form 4506-T to request a copy of your tax transcript.

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