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Responding to an IRS Payroll Tax Notice

by Cindy Blaum, CPA

The typical reasons for receiving a payroll tax notice include lack of payment or reporting, underpayment of tax or overpayment of tax. In any of these scenarios, a prompt response is important. 
The first thing to do is read the notice completely. The tax form in question is usually listed toward the top of the notice as well as the period and year the notice is referring to. You will want to review the payroll tax return you prepared and submitted for the period in question. Compare your return to the numbers provided on the notice. Note any discrepancies and investigate any differences. 
Next, determine if the IRS notice is correct or if they have misinterpreted the payroll tax return you submitted. If you believe the IRS is incorrect, you may call the 800 number listed on the top of the form to discuss the notice with an agent or write a letter to the IRS indicating the areas you think they are incorrect.  Alternatively, you can call your accountant and ask them to assist you in the matter. 
When you call the IRS, be sure to have a copy of the notice, a copy of the payroll tax return in question and copies of your workpapers used to complete the return. If a representative of your company is making call (e.g., the payroll clerk) you will need to submit a power of attorney (IRS Form 2848) to the IRS stating that person is your assigned agent. This often can be done by faxing the power of attorney form to the IRS agent after initiating the call. 
Once on the phone, the agent will confirm the federal employer identification number and will be ready to discuss the tax period in question. The agent will provide you with information as recorded by the IRS. The most common error for 941 taxes is the misapplication of the deposits to the correct payroll tax period. Problems such as this can be solved by asking the IRS to transfer the payment to the appropriate period. If the problem cannot be solved on the phone, a letter is the next course of action. The agent will make a note of the phone conversation and the taxpayer can ask for an extension of time to answer the notice, if necessary. When writing a letter to the IRS, include a copy of the notice and any supporting documentation that proves you have reported and paid the proper tax. If someone other than the taxpayer will be signing the letter, a power of attorney should be included as well.
Accounting professionals have experience in dealing with the IRS. It may be your best course of action is to send the notice to your consultant and have them handle the issue. This is probably the least stressful method of dealing with the IRS and is sometime the most effective.
If you receive a notice when you have made a mistake and you do owe additional tax, you should send it to the IRS by the date stated in the notice. If your business has a history of timely reporting and paying payroll taxes, a letter requesting the IRS to waive any assessed penalties should be submitted as well.
A timely response to a notice from the IRS is important for a successful resolution.
Cindy Blaum, CPA joined Dennis, Gartland & Niergarth in 1996 and has worked in the accounting field for over 20 years.  She manages DGN’s BizTek department and Professional Offices Niche team. A Certified QuickBooks ProAdvisor since 2000, Blaum has achieved ProAdvisor-Advanced status and leads DGN’s QuickBooks consulting. She is a member of the American Institute for CPAs and Michigan Association of CPAs. 

CIndy Blaum, CPA, QuickBooks ProAdvisor