Revenue Officer Wants to Talk With You About Late Payroll Tax Deposits
If the IRS finds a problem with your payroll tax activity, you could receive one of these letters requesting that you talk with a revenue officer:
- Letter 5664, FTD Alert Field Contact Letter, or
- Letter 5857, FTD Alert Telephone Contact Letter.
The IRS relies on the Federal Tax Deposit (FTD) Alert Program to monitor and identify how taxpayers make their deposits for payroll taxes each quarter. The alert system notices if deposits are missing or there’s a discrepancy with the deposits. Then, a revenue officer reviews your account and may send one of these letters if they want to meet or schedule a phone call to get additional information.
This page covers everything you need to know about these letters. When in doubt, contact the Law Offices of Stephen B. Kass to talk to an experienced tax attorney about IRS notices and letters related to your business taxes.
Key Takeaways:
- IRS Letters 5664 and 5857 are triggered by the FTD Alert Program when it detects a payroll tax deposit discrepancy.
- Letter 5857 is an advance notice that the IRS will contact you by phone regarding payroll tax concerns.
- Letter 5664 follows a missed in-person visit from an IRS agent and outlines the issue for the responsible business officer.
- Common reasons for these letters include late deposits, inconsistent payments, missed deposits, or depositing less than what’s owed.
- Ignoring these letters can lead to serious consequences, including the Trust Fund Recovery Penalty (TFRP), which holds individuals personally liable for missed payroll tax payments.
What Would I Receive IRS Letter 5664?
First, let’s talk about IRS Letter 5664, FTD Alert Field Contact Letter. The IRS sends this letter in situations where a revenue officer has gone to the business (referred to as making contact in the field) but wasn’t able to talk to the business owner or other responsible party. This letter informs the business owner, shareholder, or other responsible party about the field call.
At the bottom of Letter 5664, you’ll find a table that outlines the discrepancy in deposits from this quarter and the last. The table will include the applicable tax quarter, tax return date, deposits made, and penalties assessed, if applicable. It will also outline what you should do next.
Note that in March 2024, the IRS announced that it would no longer be requiring revenue officers to send this letter. Due to that change, you may receive Letter 5857 or another notice about a missed field call. In all cases, if you receive notices about late payroll tax deposits, you should reach out for help as soon as you can or contact the IRS to make arrangements.
Why Would I Receive IRS Letter 5857?
The other letter you may be wondering about is Letter 5857, FTD Alert Telephone Contact Letter. This letter notifies you in advance that the IRS will be contacting you via phone to discuss an issue identified by the FTD Alert Program.
This form also includes the table that outlines the tax quarters in question, the amount of tax due, the deposits made, and the penalties assessed. This information helps you understand why your return was triggered and what the upcoming phone call will cover.
Be prepared for the call when the time comes. Review your records thoroughly, and gather documents you need to reference while talking to the IRS representative. If you have questions, have those ready as well.
Differences Between IRS Letter 5664 and Letter 5857
The main difference between Letters 5664 and 5857 is the type of contact that will be made. Letter 5664 is related to field visits, where the IRS agent will visit the place of business in person. Letter 5857 is related to phone calls that discuss the uncovered issues with the taxpayers.
Letter 5664 is left after an initial field visit for the business official if they’re not present. This person could be a sole proprietor, partner, or corporate officer. On the other hand, Letter 5857 is an advanced notice that the IRS will be calling you about the deposit discrepancy matter.
While both letters are related to FTD alerts that are generated when your payroll tax activity is triggered, they serve different purposes. No matter which letter you receive, never ignore the information provided. Read the letter thoroughly, and discuss the details with your tax professional. Follow the instructions on your letter, if any, to ensure you stay in compliance with what the IRS is requiring of you.
Why Was I Flagged by the FTD Alert Program?
The IRS relies on computer systems to automatically review submitted tax returns to check for anomalies and flag suspicious returns. However, remember that just because your return was flagged doesn’t mean you necessarily did something wrong. The meeting with the IRS agent will help you clarify any issues if the return was flagged in error.
Sometimes, you may have made a mistake or failed to comply with tax laws, which led to getting an IRS notice or letter. Here are common payroll tax issues that may lead to getting Letter 5564 or Letter 5857:
- Your deposit was late: Even if you miss the payroll tax deadline by a few days, the IRS may flag this activity and look into the matter further. You’re probably going to incur penalties as well.
- You missed a deposit deadline altogether: Did you forget about a deadline and never send in your payroll deposits? This will also lead to compliance issues that could be triggered by automated IRS systems, leading to notices and penalties.
- Your deposits are inconsistent: One thing the FTD Alert Program monitors for is inconsistent deposits from one quarter to the next. If your deposit for this quarter, for instance, is much lower than last quarter, it may look suspicious.
- You didn’t deposit enough: If you owe more than you actually deposited, the IRS may recognize the issue and reach out about failure to comply with the necessary tax laws.
These problems can have a variety of causes. You may have simply forgotten a deadline, or your business may be going through cash flow issues, which are getting in the way of paying the full payroll taxes you owe. Whatever your reason, talk to a tax attorney when you’re not sure what to do.
What Is the Trust Fund Recovery Penalty (TFRP)?
When your payroll tax return is flagged, and you’re going to meet with an IRS agent about the issue, it’s important to understand the problem and be prepared. If you failed to comply with payroll tax requirements, your situation could escalate to a Trust Fund Recovery Penalty (TFRP) investigation.
The TFRP is a hefty tax penalty that applies if you don’t pay your full deposit amount by the applicable deadline. These investigations can take some time because the penalty isn’t incurred on the business—it’s charged to the individual who was responsible for the noncompliance or mistake. This tax penalty is equal to the amount of withholding tax that is unpaid, so it essentially doubles that portion of the tax bill.
If your business continues to have outstanding payroll tax issues, the matter may escalate even further. You don’t want to worry about IRS collection actions like federal liens or levies (asset seizure).
How to Avoid Payroll Tax Problems
Dealing with potential IRS audits and penalties is never fun. But you can take these steps now to avoid future tax problems or escalating situations:
Be Consistent with Payroll Tax Deposits
One thing IRS alert systems look for is inconsistency. Even though businesses and employees may change from one period to the next, a major change in tax deposits can look suspicious to the IRS. Make sure you stay consistent with your deposits, and be ready to show evidence of any changes in the business that led to a swing.
Don’t Miss Tax Deadlines
Paying your taxes on time is a must, including personal income taxes and business taxes. Don’t forget that businesses with employees have different deadlines for submitting payroll taxes that they collected from workers’ paychecks. If you have trouble staying on top of deadlines, create a system for automatic reminders so you never miss anything and risk penalties or use payroll software that can automate the process for you.
Stay on Top of Cash Flow
One of the biggest issues businesses face is managing cash flow properly. When you don’t have enough money to cover your expenses until a payment comes in, this could get in the way of your ability to pay taxes on time. Put better cash flow management strategies in place, like using a platform or operating with a cash reserve, to avoid IRS problems.
Never Ignore IRS Notices and Letters
Too many taxpayers make the mistake of doing nothing when they get an IRS notice in the mail. But if you don’t act, you could face additional penalties and investigations from the IRS. IRS letters often notify you that there’s a problem, so you need to immediately communicate with the IRS, follow the instructions provided, or ask a tax expert for help.
Avoid Personal Liability Through the TFRP
If payroll tax matters escalate, remember that whoever was responsible for a tax mistake will be charged with the TFRP. If you get hit with this penalty and still do nothing, you could face further actions like liens or levies on your property. Do everything you can to avoid escalation, and respond promptly to any IRS letters about payroll taxes.
Why Stephen B. Kass?
Collecting and depositing payroll taxes is a key component of running a business successfully. Unfortunately, issues will arise if you are inconsistent, late, or delinquent on these taxes. You may receive Letter 5664, Letter 5857, or other notices when the IRS sees problems with your payroll taxes and/or wants to meet with you about the issue.
When you need assistance with these letters, contact the Law Offices of Stephen B. Kass. Our legal team will work closely with you to understand your situation, represent you during IRS audits or communications, and help you resolve any payroll tax deposit problems. We also defend clients against TFRP charges, should the need arise.
Get in touch with Stephen B. Kass now to set up a consultation with a tax expert. Start now to protect your business from expensive IRS escalations.
