IRS Criticized for Repeating Erroneous Holiday Payroll Tax Deposit Penalty Notices

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By Mike Baer

Representatives from payroll service providers that deposit taxes on behalf of thousands of clients asked Internal Revenue Service officials Sept. 1 about steps to prevent the recurrence of erroneous tax deposit penalty notices that were sent to clients after at least two federal tax holidays.

John Myett, director of government affairs at ADP, LLC, told IRS officials in a teleconference Sept. 1 that the erroneous penalty notices related to changed holiday deadlines were a troubling development. The notices were sent to affected clients after Monday holidays this year for Emancipation Day on April 18 and Memorial Day on May 30.

A notice saying that a programming error resulted in IRS systems not recognizing changes in deposit due dates created by Memorial Day was issued Aug. 4 by the IRS. Notices sent to employers because of the error were rescinded and corrected, the agency said. A similar statement was issued after erroneous penalty notices were sent following the Emancipation Day holiday.

Myett was concerned about the changed deposit due dates for Labor Day on Sept. 5 and suggested that the IRS issue a statement explaining that “actions are being taken” to prevent future errors.

The IRS penalty department reviewed the issue for the remaining holidays this year and believes the problem was resolved, said Scott Mezistrano of the agency's industry engagement and strategy group. He noted that the error did not occur after this year's Independence Day holiday and that he had no information as to the total number of employers affected by the erroneous notices.

Mishandled Response

Another payroll service provider representative said that after the erroneous penalty notices, clients calling IRS for explanations and help were told that their service providers had made late payments. The IRS explanation was incorrect, the representative said.

A communication of the issue was sent to IRS call-center employees, said Mezistrano, who apologized that misinformation about the problem could possibly taint the credibility of the service providers with clients that rely on payroll tax deposit services.

Myett asked the IRS for an explanation of steps taken to resolve the issue.

For the Emancipation Day error, IRS said that employers receiving a CP161 notice with a failure-to-deposit penalty as a result were to receive follow-up correspondence indicating they do not owe a penalty. Those receiving a CP276B notice regarding an incorrect deposit that said IRS waived the penalty would not receive any follow-up correspondence.

For the Memorial Day error, IRS said those who received a CP161 notice would receive a new notice of adjustment CP210/220 stating the account was corrected and they do not owe a penalty. Employers receiving a CP276B notice that said the IRS waived the penalty would not receive any follow-up correspondence.

To contact the reporter on this story: Mike Baer at mbaer@bna.com To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com

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