As a small business owner, you may be used to opening your mailbox and seeing an envelope from the IRS. It’s not always an indication of something wrong or demanding immediate action. However, if that letter is filled with words like “seize” or “levy,” it’s more than enough to raise some red flags. You may even worry that you’ll go to jail. (Don’t worry; that’s pretty unlikely!)
Warning letters have different meanings for small businesses than they do for individuals. You worked hard to build your business from the ground up, and it’s a big fear that you may have to close it. Plus, if you’ve been working with an accountant or payroll specialist, having so much on the line because of your accounting or payroll can feel like a betrayal of your trust.
At CSI Accounting & Payroll, it’s not uncommon for us to get letters from the IRS. After all, we’ve been working with small businesses for over 50 years. Strong language in letters from the IRS isn’t always a cause for alarm and can just be used to encourage a quick correction of an issue. Everything will be alright; we know what to do.
Other small business owners who have received alarming letters from the IRS want to know:
- Why they are receiving an IRS letter
- What it would take for them to go to jail
- How to get the letter’s issue resolved
Why Am I Getting an IRS Letter?
Is This Letter From the IRS Real?
Chances are, a letter from the IRS is probably legitimate. It’s risky business to impersonate a government agency, and IRS letters are fairly common.
However, with any suspected scam, you should read the letter carefully and keep an eye out for typos, suspicious requests for information that are unrelated to the subject, and a lack of information pertaining to you, indicating that the letter was mass-sent instead of on a by-case basis. Scams often will ask for payments through prepaid cards or threaten the use of local law enforcement.
Don’t feel pressured to respond to the letter before talking with your small business accountant or payroll specialist. If you work with CSI Accounting & Payroll, we will be able to quickly help you identify legitimate IRS letters and resolve them.
Accounting (Income) Tax-Related IRS Letters
When you think of the IRS, you probably associate it more with income tax than payroll. This isn’t necessarily true; income tax letters from the IRS are less common than payroll ones. An IRS letter about your income taxes falls into one of three main categories:
- You haven’t filed your tax return yet.
- Income was reported to them by a third party that was not shown on your tax return.
- You are being audited.
IRS tax audits are rare for businesses and essentially mean the IRS wants to take a deeper look into your finances. However, they can also happen at random!
Read more about going through an audit (and how CSI helps) here.
Payroll-Related IRS Letters
At CSI, we get more letters pertaining to payroll than ones pertaining to accounting. Why is that? Payroll has many deadlines and strict compliance guidelines. Each year in Minnesota, there are 14 payroll tax return deadlines. Plus, if you have more employees and a higher pay frequency, there are more payment deadlines and more opportunities for errors to occur.
Typically, when you get a payroll-related IRS letter, it’s telling you any of the following:
- A tax return was never received.
- A tax payment was late.
- Tax payments paid don’t match the amount owed on a tax return.
You may also receive a letter about a payroll tax audit. Generally, it is rare to actually go through a payroll tax audit.
What Would It Take to Go to Jail?
When some small business owners get strongly-worded letters from the IRS, they worry that they may be going to jail. Let’s call that a worst-case scenario; it’s extremely unlikely. Let’s talk hypothetically, though…
Accounting-Related Jail Time
If this is a business tax audit letter, you’re much less likely to serve jail time than if it was a personal tax audit letter. Hypothetically, what could cause jail time? It could look like many years of not filing taxes while having the IRS ask you to, plus owing very large sums of money.
You would have to be fraudulent, as opposed to just negligent.
Payroll-Related Jail Time
According to our payroll department manager, it would take “years of willful neglect” to go to jail over a payroll-related IRS letter. In fact, in the 15 years that he has spent with CSI, he says that he has never seen it happen before.
Hypothetically, what could cause jail time? It would take many years of not paying payroll taxes.
It’s more likely that your bank account would get garnished or your business would get shut down than for you to go to jail. The IRS wants you to pay what you owe, and you’re not going to be able to do this if you’re sitting in jail.
What Should I Do to Resolve an IRS Letter?
For the most part, there shouldn’t be any mystery when it comes to resolving an issue highlighted in a letter from the IRS. Each letter should have clear directions on what to do next. However, having a trusted accountant or payroll specialist on your side can remove any doubt.
Resolving an Accounting-Related Letter
An accounting-related letter may indicate that you need to get some back work done or that you’re being audited. Luckily, CSI helps with both!
We can assist you with fixing your books and filing back taxes. If your taxes are not up-to-date, then your accounting won’t be accurate. We want to provide a quality accounting service for you in the future, so we will need to start with a clean slate.
We offer agent-level support for income tax audits, meaning that we deal with the IRS agent directly. We will get power of attorney so we can work through the appeal process if we feel that they incorrectly made a determination. Almost all of these issues are resolved at the agent level and never need to go to tax court.
Resolving a Payroll-Related Letter
Payroll letters are usually simple; they will usually instruct you as to what you need to do to resolve the issue. Your payroll specialist can help you file a missing return, make payments for any amounts actually owed, or amend a tax return that is required to fix any errors that triggered the letter. If that requires back work, we can help you with payroll ones as well!
If you haven’t been paying taxes and filing returns, you’ll need to get your payroll back taxes done. To do so, we’ll need to rebuild your data in our system as if we did your prior payrolls, and then our software will help us file your old returns. When we make amendments to your W2s, we can print them out and have the final product in your hands as soon as they’re done.
Know What to Do With Your IRS Letter
If you received an alarming letter from the IRS, don’t panic! The experts at CSI Accounting & Payroll are familiar with IRS letters and processes from our more than 50 years of service. Whether it’s guiding you through why you’re receiving the letter, what potential consequences would be, or how we can assist you in resolving the issue, we’re here to help.
Having a trusted accountant and payroll specialist on your side is an excellent decision to prevent future errors as well. If this piques your interest, feel free to schedule a free consultation today by clicking the button below!
Otherwise, you can find out if you are a good fit to work with CSI.
