TIGTA: IRS processes should reduce third-party payer risks


The IRS needs effective processes to protect the taxpayer’s and the government’s interests when third-party payroll providers do not comply with payment and filing requirements, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). Of the four most common types of third-party payer arrangements, only reporting agents and Section 3504 agents are required to submit authorization forms that disclose the relationship between an employer and a third-party payer. The IRS does not require a similar authorization for employers that use a payroll service provider (PSP) or a professional employer organization (PEO). In addition, authorization forms were not always accurately processed.

TIGTA made five recommendations, of which the IRS agreed to three, and partially agreed with the other two. The IRS agreed that it would partner with the Bureau of the Fiscal Service on the development of a formal plan that includes action items, system requirements and time frames for the implementation of the process to use the Electronic Federal Tax Payment System (EFTPS) to link the payroll service providers with the employers that use their services. The IRS is working on establishing the voluntary certification program enacted into law as Code Sec. 3511 in December 2014. However, the IRS will not be able to readily identify noncompliance with payment and filing requirements of PEOs that do not certify. (TIGTA Press Release: Processes Are Needed to Link Third-Party Payers and Employers To Reduce Risks Related to Employment Tax Fraud; TIGTA Report: Processes Are Needed to Link Third-Party Payers and Employers to Reduce Risks Related to Employment Tax Fraud (Reference Number: 2015-40-023).)

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