Firm Insights

Last week, I had the pleasure of attending the New York University 10^th Annual Tax Controversy Forum and hearing Paul Mamo, Director of Collection in the Internal Revenue Service, speak on developments in employment tax enforcement.

Over the past few years, the IRS initiated an “Early Interaction Initiative” with respect to employment tax obligations.  In the past two years, the IRS reached out to approximately 21,000 employer-taxpayers that were slightly behind in filing and/or paying employment taxes.  The IRS saw a 12% increase in voluntary compliance from these 21,000 employers compared to the total population of delinquent employers.  According to Mr. Mamo, the IRS concluded that a focus on taxpayer education and an effort to shift behavior will generate significant results.

Mr. Mamo mentioned an initiative between the IRS and the Bureau of Fiscal Services to develop a program for expanded early-intervention of delinquent employers.  Because resources are currently needed to implement the recent tax reform and address other immediate issues, the IRS expects a delay in its development and rollout of this expanded program.

Civil and criminal employment tax enforcement continues to be a priority of the IRS and the Tax Division of Department of Justice.  Last year, 30,680,601 employment tax returns were filed in the United States, an increase of 0.7% from the prior year. The IRS estimated that 0.2% of employment returns filed were selected for audit in 2017.  It assessed $6.9B in civil penalties related to employment taxes, but also abated $5.4B in those civil penalties.

Criminal investigations and prosecutions relating to employment tax violations also continue to be a focus among the IRS Criminal Investigation and the Department of Justice.

The IRS is certainly developing education initiatives and behavior-shifting efforts with respect to employment tax filing, withholding and remission.  This attention, however, does not reflect a softening stance toward employment tax violations. Employment tax enforcement remains a top priority and employers are well-served to attend to their employment tax obligations.