The IRS knows that unpaid payroll taxes can quickly become unmanageable, so they generally try to act at the first sign of trouble. That’s why the Federal Tax Deposit (FTD) Alert program exists — it works as an “early warning system” for payroll tax problems.
If the FTD Alert program identifies a possible problem, the IRS starts the early intervention process, which includes sending out a notice to taxpayers called IRS Letter 5857, FTD Alert Appointment Letter. If you’ve received this notice, reach out to our team for help today, or keep reading to learn more.
The goal of this blog post is to discuss this letter, including what it is, why the IRS sends it, what you can expect after you receive the letter, what happens if you ignore it, and what you can do to avoid getting one.
Key Takeaways
- Letter 5857 is sent to taxpayers if the FTD Alert Program spots a potential problem with that taxpayer’s payroll taxes.
- The goal of Letter 5857 is to schedule a time for a revenue officer to talk to the taxpayer and figure out what might be going wrong, as well as explain what could happen if the potential problem isn’t properly addressed.
- Negligent failure to comply with payroll tax responsibilities could result in penalties and interest while intentional failure could lead to criminal charges.
- Taxpayers should carefully read Letter 5857 to understand why it was sent, and then address any potential problems with their payroll system.
- Depending on the nature of the payroll tax issue, talking to a tax professional before the phone call is recommended.
An Overview of IRS Letter 5857
Formerly known as an FTD Alert Telephone Contact Letter, the FTD Alert Appointment Letter (5857) is a notice the IRS sends business taxpayers that the FTD Alert Program has identified them as potentially having failed to comply with their payroll tax obligations.
This letter is typically sent by IRS revenue officers to ask taxpayers to schedule a phone call. The goal of this phone appointment is for the revenue officer and the taxpayer to discuss what might be going on with the taxpayer’s payroll tax requirements.
IRS revenue officers used to sometimes show up unannounced at the taxpayer’s place of business instead of sending a 5857 letter. The IRS changed this policy recently, so revenue officers now send 5857 notices as their primary form of initial contact with the taxpayer.
Why the IRS Sent You a 5857 Letter
The FTD Alert Program informs the revenue officer that they need to mail out Letter 5857 when there’s a chance your business isn’t fully compliant with its payroll taxes. Often, this means your business missed one or more payroll tax deposits, has been sending significantly less in payroll tax deposits, and/or has been late with remitting these payroll taxes to the IRS.
What to Expect During the Phone Call with the IRS
During your phone call with the revenue officer, they’ll remind you about your payroll tax duties and what happens if you don’t meet them. This call also allows you to explain what’s happening and for the revenue office to see if you’re simply having a bit of financial difficulty or if you’re willfully ignoring your employment tax responsibility.
If the former applies, the revenue officer will discuss several forms of tax relief that might be available, such as a payment plan. If the latter applies, the revenue officer will explain what could happen if you consciously choose not to collect or send the payroll taxes to the IRS, such as a Trust Fund Recovery Penalty (TFRP) or going to jail for criminal tax fraud (tax evasion).
Ignoring Letter 5857
This is something you should not do. If you ignore Letter 5857 (or otherwise don’t agree to talk to the IRS over the phone within 25 days), the IRS will probably escalate your case. This will likely mean sending you IRS Letter 725-B, where the IRS seeks an in-person meeting with you instead of one over the phone.
Assuming you don’t have a justification or legal explanation for the payroll tax anomalies and you’re not sending the IRS the payroll taxes you’re supposed to, you can expect any of the following potential consequences:
- Failure to Deposit Penalty: This can range from 2% to 15% of the unpaid amount, depending on how late the payment is.
- TFRP: This is 100% of the unpaid payroll taxes collected from your employees that have been held “in trust.” What makes this penalty especially notable is that your business may not be the one that has to pay it, but rather this penalty is imposed on the individual(s) who are responsible for the payroll taxes not being paid.
- Criminal sanctions: This can include hefty fines and even imprisonment. Jail time is rare, but possible for taxpayers who willfully refuse to comply with their payroll tax duties.
- Enhanced tax collection efforts: The IRS wants your business to pay its payroll taxes and will go after your business if this doesn’t happen. This could mean tax liens and/or levies which could make it harder for your business to obtain credit or continue operations.
How to Respond to Letter 5857
After you carefully read the letter, make sure you understand the issue that caught the IRS’s attention, then gather the necessary information to refute the IRS’s position.
For example, if the IRS believes you underpaid your payroll taxes (and you believe you didn’t), gather the payroll and tax documentation to support the amount you sent and that you withheld the proper amount. If you find the supporting documentation, you can refer to it during the phone call with the revenue officer.
In situations where the IRS is correct about you missing payroll tax payments, review your payroll records to see what went wrong and how much you could be liable for.
While not required, it’s recommended that you consult with a tax professional with experience handling payroll tax problems with the IRS. This tax pro can help you fully understand what’s happening and why. They can also help protect you and your business from further trouble by minimizing any future problems or mistakes.
Preventing Future FTD Tax Issues
After you’ve resolved whatever payroll tax concern that led to you getting Letter 5857, you want to figure out what caused the payroll problem. This might include consulting with a CPA or tax attorney and having them examine your payroll records.
If you used an outside payroll company, you’ll want to get in touch with them and see if they can shed some light on what happened. If it was your payroll company that made an error leading to your 5857 notice, you’re still the responsible party and therefore, liable for any unpaid payroll taxes (and penalties and interest).
If you didn’t use an outside payroll company, it might be a good time to consider hiring one. They specialize in payroll taxes, so they’re (usually) in a better position to understand what needs to be done and ensure everything gets collected, reported, and remitted to the IRS properly.
Even if you used a payroll company, it’s still a good idea to have an accountant review their work to make sure they’re not missing anything and that you’ve provided all the information necessary for the payroll company to process your payroll taxes properly.
Finally, make sure you (and the appropriate personnel at your business) learn what your business’ payroll responsibilities are. You don’t need to be an expert, but it helps to have a rough idea of what payroll obligations your business has, including payroll payment schedules, deadlines, and approximate amounts that must be collected and sent to the IRS.
IRS Letter 5857 FAQs
What triggers an IRS Letter 5857?
Usually, it’s a late or missed payroll tax payment to the IRS, but it can also include a payroll payment that’s significantly lower than what’s usually been sent in the past.
Is Letter 5857 the same as an audit?
No, but it could potentially lead to an audit. The goal of Letter 5857 is for the IRS to check in with the taxpayer to see what’s going on with their payroll taxes. The goal of an audit is to verify that a taxpayer is reporting their income and other financial information to the IRS correctly and accurately.
Do I have to talk to the IRS to resolve Letter 5857?
You don’t personally have to, but someone likely does. If you’re not comfortable talking to the IRS revenue officer, you can hire a tax professional, such as a tax lawyer, to speak on your behalf.
What happens if I have already fixed the deposit issue?
Then you can explain this to the revenue officer when you talk to them. Just keep in mind that depending on what the problem was, you might want to first talk to a tax attorney to avoid possible self-incrimination. This is especially applicable if illegal actions led to the payroll tax issue that resulted in a 5857 notice.
What happens if my payroll company is responsible for my payroll tax issues?
You’d still likely be liable for the underlying taxes, penalties, and interest. However, if your payroll company engaged in fraud and that’s what led to your payroll tax failure, then you likely don’t need to worry about the more severe repercussions, such as criminal charges.
Can legal help change the outcome of Letter 5857?
Hiring a tax professional can potentially make a difference. A tax attorney can help examine your payroll records, and if they find a discrepancy, they can explain the potential solutions and the legal consequences of each one.
Damiens Law Can Help With 5857 Letters and FTD Tax Issues
Payroll taxes are a pain and difficult to deal with; there’s a reason there are so many payroll companies out there. But whether you hire a third party to help or handle everything yourself, mistakes or misunderstandings can still occur, leading to a 5857 letter in the mail.
If this happens to you, don’t hesitate to contact the Damiens Law Firm for a free consultation. We’re ready to help resolve whatever payroll tax problems you might have.
