Reasonable notice procedure clarified for third-party employee wages and withholding investigations

Recent IRS Chief Counsel Advice warns personnel of the IRS Wage and Investment Division that they should give taxpayer employees reasonable notice before contacting their employer.  Under the agency’s Questionable Refund Program, you as an employer may be contacted by the IRS to verify an employee’s wage and withholding information as part of the agency’s efforts to investigate the employee’s claimed tax refund. 

Advanced Notice Requirement 
 
By law, the IRS cannot contact a third-party regarding your tax liability or those of your employees without giving “reasonable” advance notice of their intentions.  In this advice memorandum, IRS Chief Counsel surmised that this also applies to the IRS’s attempts to contact you, the employer, about your employees’ wage and withholding information.  

To give “reasonable notice,” the Chief Counsel advised that the IRS mail the employee Publication 1, Your Rights as a Taxpayer.  The IRS should then wait 10 days before contacting you, the employer.  Should the Publication be hand-delivered to your employee, however, the Chief Counsel advises that the IRS will be able to contact you immediately. 

Third-Parties Contacted

IRS Chief Counsel also advised that IRS should periodically or upon request, provide your employees with a record of individuals contacted regarding their wage and withholding verification.  This means that your employees, or even ex-employees, could be aware of any contact you have with the IRS regarding their potential tax liability.   
   
Yet, current federal regulations do not require that the IRS identify the exact person contacted for purposes of this report.  As a result, Chief Counsel advised that the IRS personnel could record the name of your company as the “person” contacted, rather than the actual individual the agency spoke with.   

If you have been contacted by the IRS regarding one of your employee’s tax liabilities, and your employee is concerned that the IRS may have crossed the line, please feel free to give our offices a call.  We can help guide you through this sensitive area.

CCA 200814008