All posts by David Lynch

Outsourcing Payroll Duties

Outsourcing Payroll Duties Can Be a Sound Business Practice, But… Know Your Tax Responsibilities as an Employer

Many employers outsource some or all of their payroll and related tax duties (i.e., withholding, reporting, and paying social security, Medicare, and income taxes) to third-party payroll service providers. Third-party payroll service providers can help assure filing deadlines and deposit requirements are met and greatly streamline business operations. Some of the services they provide are:

  • Administering payroll and employment taxes on behalf of the employer, where the employer provides the funds initially to the third-party.
  • Reporting, collecting and depositing employment taxes with state and federal authorities.

Employers who outsource some or all of their payroll responsibilities should consider the following:

  • The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though the employer may forward the tax amounts to the third-party to make the tax deposits, the employer is the responsible party. If the third-party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer’s account. The employer is liable for all taxes, penalties and interest due.  The employer may also be held personally liable for certain unpaid federal taxes.
  • If there are any issues with an account, the IRS will send correspondence to the employer at the address of record.  The IRS strongly suggests that the employer does not change their address of record to that of the payroll service provider as it may significantly limit the employer’s ability to be informed of tax matters involving their business.
  • Employers should ensure their payroll service providers are using EFTPS (Electronic Federal Tax Payment System) so the employers can confirm that payments are being made on their behalf.  Everyone should use EFTPS and Treasury regulations require electronic payment for payroll taxes over $200,000 in a calendar year.  Employers should register on the EFTPS system to get their own PIN and use this PIN to periodically verify payments. A red flag should go up the first time a service provider misses or makes a late payment. When an employer registers on EFTPS they will have on-line access to their payment history for 16 months. In addition, EFTPS allows employers to make any additional tax payments that their third-party provider is not making on their behalf such as estimated tax payments.

    EFTPS is secure, accurate, easy to use and provides an immediate confirmation for each transaction.  The service is offered free of charge from the U.S. Department of Treasury and enables employers to make and verify federal tax payments electronically 24 hours a day, 7 days a week through the Internet, or by phone.  For more information, employers can enroll online at EFTPS.gov, or call EFTPS Customer Service at (800) 555-4477 for an enrollment form.

There have been recent prosecutions of individuals and companies who, acting under the guise of a payroll service provider, have stolen funds intended for payment of employment taxes. For more information, visit the Examples of Employment Tax Fraud Investigations – Fiscal Year 2014.

Remember, employers are ultimately the parties responsible for the payment of income tax withheld and both the employer and employee portions of social security and Medicare taxes.

Employers who believe that a bill or notice received is a result of a problem with their payroll service provider should contact the IRS as soon as possible by calling the number on the bill, writing to the IRS office that sent the bill, calling 1-800-829-4933, or visiting a local IRS office. For more information about IRS notices, bills and payment options, refer to Publication 594, The IRS Collection Process (PDF).

We will be closed for Memorial Day

Our office will be closed Monday, May 26, 2014, in observance of Memorial Day. Should you need immediate assistance, please email either David at david@thelynchlawfirm.com or Allyson at allyson@thelynchlawfirm.com, and someone will respond as soon as possible.

Thank you to all our veterans for their service to our country!

Sincerely,

The Lynch Law Firm

N-2014-35 & RP-2014-32: Pension Plan Penalty Relief

Revenue Procedure 2014-32 establishes a one-year pilot program to provide relief to plan administrators who fail to timely file Form 5500 EZ.

Revenue Procedure 2014-32 will be published in Internal Revenue Bulletin 2014-23 on June 2, 2014.
 
Notice 2014-35 applies administrative relief  to late filers of Form 5500 who satisfy the requirements of this notice and the Delinquent Filer Voluntary Compliance (“DFVC”) Program administered by the Department of Labor (“DOL”) Employee Benefits Security Administration.   

Notice 2014-35 will be published in Internal Revenue Bulletin 2014-23 on June 2, 2014.

RP-2014-33, Methods of accounting

Revenue Procedure 2014-33 provides the exclusive procedures by which a taxpayer obtains the consent of the Commissioner under § 446(e) of the Internal Revenue Code to (1) change its method of accounting for royalties described in § 1.263A-1(e)(3)(ii)(U)(2) of the Income Tax Regulations, (2) change its method of accounting for sales-based vendor chargebacks described in § 1.471-3(e)(1), or (3) change its simplified production method or simplified resale method for costs allocated only to inventory property that has been sold, to comply with final regulations under §§ 263A and 471.  The final regulations (TD 9652) were published in the Federal Register on January 13, 2014.

Revenue Procedure 2014-33 will be in IRB 2014-22, dated May 26, 2014.

N-2014-33: Further Guidance on the Implementation of FATCA and Related Withholding Provisions

Notice 2014-33 announces that calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of FATCA by withholding agents, foreign financial institutions (FFIs), and other entities with chapter 4 responsibilities, and with respect to certain related due diligence and withholding provisions under chapters 3 and 61, and section 3406. This notice also announces certain intended amendments to the regulations under sections 1441, 1442, 1471, and 1472, including amendments providing that a withholding agent or FFI may treat an obligation (which includes an account) held by an entity that is opened, executed, or issued on or after July 1, 2014, and before January 1, 2015, as a preexisting obligation for purposes of sections 1471 and 1472, subject to certain modifications set out in the notice.  Taxpayers may rely on Notice 2014-33 regarding these proposed amendments to the regulations prior to their issuance.

Notice 2014-33 will be published in Internal Revenue Bulletin 2014-21 on May 19, 2014.

IRS Tax Tip 2014-60: Ten Things to Know about IRS Notices and Letters

Ten Things to Know about IRS Notices and Letters

Each year, the IRS sends millions of notices and letters to taxpayers for a variety of reasons. Here are ten things to know in case one shows up in your mailbox.

1. Don’t panic. You often only need to respond to take care of a notice.

2. There are many reasons why the IRS may send a letter or notice. It typically is about a specific issue on your federal tax return or tax account. A notice may tell you about changes to your account or ask you for more information. It could also tell you that you must make a payment.

3. Each notice has specific instructions about what you need to do.

4. You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

6. If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. You shouldn’t have to call or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.

8. Keep copies of any notices you receive with your other tax records.

9. The IRS sends letters and notices by mail. We do not contact people by email or social media to ask for personal or financial information.

10. For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

IRS YouTube Videos:

IRS Tax Tip 2014-59 Unpaid Debt Can Affect Your Refund

Unpaid Debt Can Affect Your Refund

If you owe a debt that’s past-due, it can reduce your federal tax refund. The Treasury Department’s Offset Program can use all or part of your refund to pay outstanding federal or state debt.

Here are five facts to know about tax refunds and ‘offsets.’

1. The Bureau of Fiscal Service runs the Treasury Offset Program.

2. Debts such as past due child support, student loan, state income tax or unemployment compensation may reduce your refund. BFS may use part or all of your tax refund to pay the debt.

3. You’ll receive a notice if BFS offsets your refund to pay your debt. The notice will list the original refund and offset amounts. It will also include the agency that received the offset payment and their contact information.

4. If you believe you don’t owe the debt or you want to dispute it, contact the agency that received the offset. You should not contact the IRS or BFS.

5. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt. To request your part of the refund, file Form 8379, Injured Spouse Allocation.

You can get forms on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts: