By Payroll and Entitlements Editorial Staff
The IRS has updated its procedures on delinquent returns. The procedures focus on delinquent and substitute returns for employment tax returns, including those filed for reporting taxes due under: In the interest of reducing multiple contacts with taxpayers, examiners will determine whether the taxpayer is fulfilling all federal tax obligations during the course of either a compliance check or the examination of an assigned return.
- Federal Insurance Contributions Act;
- Federal Unemployment Tax Act;
- Railroad Retirement Tax Act;
- Federal Income Tax Withholding; and
- Backup Withholding.
Policy statement review. The Employment Tax Program is governed by policy statements and other internal guidance that apply to all Service personnel regardless of operating division. Examiners should review these policy statements to properly perform their examination duties. When an examiner discovers during any examination that a taxpayer may have failed to file required federal tax returns, he/she will, before soliciting any returns, determine the taxable periods and type of returns for which the taxpayer may be liable. If returns are determined to be required, the examiner will ascertain the reasons why the taxpayer failed to file the required returns and determine whether any indications of fraud exist. When information is developed during an examination that indicates the taxpayer’s failure to file a required return or returns is willful, or if there is any other indication of fraud, the case will be discussed with the group manager.
Fraud technical advisor. If the group manager concurs that the possibility of fraud exists, the Fraud Technical Advisor will be contacted. In addition, all taxes, penalties and interest are immediately due. The taxpayer will be asked to deliver the returns promptly to the examiner. The examiner will request payment of the liabilities and explain the taxpayer’s options for collection alternatives (e.g., installment agreement, offer-in-compromise). The examiner should also be prepared to discuss services available from the Taxpayer Advocate Service, if necessary. The examiner will set a specific date for receiving the returns. The date should be reasonable in light of the facts and circumstances in the case, the number of employees involved and other factors which may extend the time necessary to prepare a proper and correct return. When a taxpayer is advised to file all required delinquent returns but refuses to file, or states he/she is unable to file all of the returns, a determination will be made as to the extent the filing requirements should be enforced. Any deviation from the general six-year guideline requires managerial approval.
Delinquent returns. There are some delinquent employment tax returns filed on which no balance due was originally reflected, but, as a result of an examination, additional tax is proposed. Since the returns as originally filed reflect no taxes due, they are processed without considering the delinquency features or without securing a statement from the taxpayer as to the cause for delay in filing. The examiner will secure a statement from the taxpayer and determine if reasonable cause exists. The decision as to whether to assert delinquency penalties will be made based on this statement. Examiner comments as to the assertion or nonassertion of penalties will be incorporated into the report transmittal and workpapers. Employment tax nonfiler cases can be processed using either delinquent return or substitute for return procedures. Examiners securing delinquent returns will advise the taxpayer that all taxes, penalties and interest are immediately due.
Campus address. If the secured delinquent returns are not within the examiner’s responsibility (i.e., no exam controls will be established), the returns should be filed with the appropriate Campus address, as noted in the return instruction package for the secured return (e.g., Form 1040, Form 1120). In cases where no return has been filed or a delinquent return is secured, a determination must be made whether to assert the failure to file and failure to pay penalties. When a taxpayer is advised to file all required delinquent returns but refuses to file, states inability to file or neglects to file within the timeframe set, a determination will be made as to the extent the filing requirements should be enforced. Finally, delinquency procedures will generally be enforced if a taxpayer has failed to file a one-time return. In other cases when contact is made with a delinquent taxpayer, delinquency procedures should ordinarily be followed through for at least one period. However, the circumstances of each individual case must be taken into consideration. (Internal Revenue Manual, IRM 4.23.12, November 29, 2018.)
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