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Lawmakers Encourage IRS to Focus Attention on Payroll Services Fraud

Author: Scarinci Hollenbeck, LLC

Date: June 3, 2013

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Many small businesses seeking to improve efficiency and ensure compliance with U.S. tax law outsource their payroll services to third-party providers. These companies typically manage online payroll processing for workers and employee payroll tax filing, giving business owners more freedom to focus on their operations. However, payroll tax fraud is an increasingly common tax law violation, and when this occurs, small businesses run the risk of facing fines, penalties, and reputational damage.

In response, lawmakers are pushing the Internal Revenue Service to conduct a larger crackdown on these service providers to protect local employers.

Talks between lawmakers on the Senate Appropriations Committee, IRS Acting Commissioner Steven Miller, and Treasury Inspector General for Tax Administration J. Russell George addressed the need to recognize the warning signs of payroll provider fraud. This crime occurs when providers fail to remit federal payroll taxes to the IRS.

Most recently, payroll provider AccuPay sought bankruptcy protection after several clients sued the company for failing to send in federal tax payments to the IRS. When these scenarios occur, businesses often lose out on thousands of dollars that may impact their ability to continue operations. As the payroll taxes must still be paid to state and federal authorities, many small employers who don’t have the funds available may fall into debt trying to repay the balances. New legislation, though, was recently proposed to protect small business owners from these abuses.

The bill would allow for greater oversight of third-party payroll companies, particularly by requiring them to register with the IRS, according to Accounting Today. The initiative would also mandate that the IRS send notifications to small business owners when their payroll providers suddenly change their address or go out of business.

While Miller called payroll tax fraud a “recurring problem,” he has yet to make a determination about how the IRS plans to address the issue in the future, the news source concluded.

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