What This Letter Means
Letter 4838, Payroll Service Provider Client, goes to businesses that used a payroll service provider the IRS has found did not make the tax deposits or payments it was supposed to make. The IRS uses it to make first contact with the provider's clients and explain the options available. It often comes from a revenue officer.
The Hard Truth
As the employer, you are responsible for withholding, reporting, and paying federal employment taxes. That stays true even if you sent the money to a payroll company that kept it. The exceptions are narrow: a provider that is the statutory section 3401(d)(1) employer, or a certified professional employer organization (CPEO) for worksite employees. If neither applies, the IRS can assess the unpaid tax, penalties, and interest on your account.
Responsible people inside your business can also face personal liability for the unpaid trust fund taxes through the Trust Fund Recovery Penalty.
The Relief Available
- Penalty relief: once it's established that your business was a victim of payroll provider failure or fraud, the IRS considers abating penalties for the affected periods.
- Trust Fund Recovery Penalty: being a victim is a factor when the IRS looks at whether a person acted willfully.
- Offer in compromise: the letter explains special consideration available to victims of payroll provider fraud through the offer program.
What to Do
- Collect proof of every payment you made to the provider, along with your service contract and any reports it gave you.
- Get your federal tax deposit history and compare it to what the provider claimed it paid.
- Contact the IRS right away. Don't wait for a bill.
- Make sure current payroll taxes are deposited directly and on time from now on.
If your payroll company didn't pay your taxes and you received Letter 4838, call us at (813) 229-7100.