IRS Penalty Letter

We – PayrollOnABudget.com - received a notice today from the IRS that said one of our clients owed $3500.00 in taxes for 2004.  It was a form CP220 with no explanation of the taxes due just the penalty and interest calculations.  That seemed strange so I called the Practitioners Hotline I wanted to find out what taxes were due.  The nice young lady at the IRS told me it was from the reconciliation of the W3’s and the 941’s.  That seemed strange so she checked a little more for me. 

She told me there were 31 1099-Rs and no Form 945 had been filed for them.  The IRS just assumed that the money was due to the IRS and sent a notice with out explanation.  If you don’t work with the IRS all the time you might not realize that that is a little unusual.  Normally they explain exactly what tax is due and why.  Not that they are right but they are certain.

 We don’t do 1099Rs for this client.  I called the client and asked about their 401K plan for that year.  Sure enough they had 31 1099-Rs which had $3500.00 of withholding.  Employees who had terminated and left the 401K plan and did not roll over their account.  My client called T. Rowe Price who was the plan administrator and Trustee.  Seems like T. Rowe had a computer glitch for 2004 and most of their 401(K) Form 945 for their clients were filed with the wrong tax ID number.

It makes me wonder how many companies just wrote a check to the IRS to fix a problem that T. Rowe Price caused.  Wrote a check for money that was not really due. 

According to the IRS’s own Tax Payer Advocate 40% of all employment tax notices the IRS sends out are settled for zero dollars.  Add to that those that are paid because people either don’t understand, are too scared to fight, are too lazy to fight, its too expensive to fight or are just paid because the IRS has to be right!  The odds are that if you receive employment taxes notice you really don’t owe anything.  What a deal from our kinder and gentler IRS (they have dropped that marketing phrase).

Energy Savings Act of 2005

The Energy Savings Act of 2005 which was signed into law last August extends Daylight Savings Time by four weeks.  If you automated time system is not update you may find your self with a problem. This year Daylight Saving Time starts on March 11 and ends on November 04.

The change happens at 2AM so normally third shift workers are affected.  In the spring you can overpay  workers with ease.  They were there from 11:00PM to 7:00 AM but in reality only worked seven hours.  The clock “Spring(ed) Forward”.  In the fall you can under pay because the third shift of eight hours was really nine hours long because the clock “Fall Back”.

It only happens twice a year but it needs to be done right.