In the course of normal business it is almost 100% certain that you will receive at least one notice from the IRS. The reasons for these notices can range wildly from simply informing you of a requirement or change to requirements all the way to urgent notices about balances due or return errors. Here we will go over some of the most common notices S-corps may receive from the IRS and how they should be treated.
First, a couple of reminders:
- The IRS will NEVER call you directly. They will send notices/letters, then if those are ignored they will show up at your door.
- Many an ongoing scam revolves around calling people and claiming they owe money that they do not to the IRS in an attempt to get personal financial information and steal identities.
- You should also, above all else, NEVER PANIC when you receive a notice. Notices are often sent in error, or are easily handled and cleared.
- Received an IRS notice? Read here about the next steps
The Most Common Notices S-corps May Receive From The IRS
Missing Payroll Tax Return - CP136
Probably the most common notice that we see new S-corps receive are requests for 941’s to be filed. When a new S-corp is created the IRS will often assume there is payroll during a period where the company had not yet actually processed any payroll. This notice is triggered when the first actual form 941 with payroll information is filed, and the IRS assumes there may have been payroll that has not been reported.
This notice actually is the easiest to clear up as it includes a handy option in the notice to mark a box stating the company did not have payroll during that period and mailing or faxing the notice back to the IRS. The S-corp should be aware there may also be state level payroll tax requirements that are similar; a state level notice for missing returns should not be ignored and are often cleared up just as easily.
Federal Employment Tax Unpaid - LT73
While we do not typically see this notice for S-corps that Formations has helped start (as we use Gusto for payroll processing from the beginning) for some S-corps that have used a different accountant or attempted to deal with payroll on their own this notice is fairly common. The issue arises from having returns filed that do not match funds sent to the IRS for payroll taxes.
This can be more complicated to clear up only because it must first be established what the error is before it can be addressed. Was the return filed (or not filed) with the wrong information? Or was the amount sent for payroll taxes calculated incorrectly or not sent at all?
By first establishing what the problem is it can inform how to clear the notice. If the return was filed with errors an amended return can be sent. If the amounts sent were too little then you can simply pay the difference, likely with some interest and penalties added to it.
Notice 931 - Federal Deposit Schedule
One notice every new S-corp gets, but also a common one to receive on an annual basis, is the Federal Deposit Schedule notice. This notifies the S-corp what frequency their federal income tax, social security and Medicare deposits are due to be remitted. Basically it tells you how soon after you run payroll you are required to send in the funds withheld from employee checks and the corresponding employer tax portions. This frequency is determined based on size of payroll in dollar amounts averaged over the last 12 months.
The most common frequency at first is Quarterly, but as soon as you cross the $2500 threshold of payroll it switches automatically to monthly, and then as payroll grows even further to semi-monthly. The good news is for Formations customers you don’t have to worry about this notice at all because all your payroll is automatically handled by our partner Gusto, including the remitting of payroll taxes in a timely fashion. So you can file this notice away and go on with your day!
Audit Notice
While audits are not what we would deem “common” we feel it is crucial to understand how audits are determined and carried out and what you as the taxpayer should look out for. First and foremost an audit is NOT something to panic over as long as you have your accounting in good order, which all Formations customers can be assured of. At that point it’s simply the IRS going over your books to verify it matches your tax reporting and trying to find anything that may have been improperly claimed.
Received an IRS Notice? Don’t Panic!
The first thing you should do as a Formations customer if you receive an audit notice is to upload the document in full (front and back of each page, if applicable) and reach out to your Customer Success Team to confirm receipt and next steps. Your CSM will loop in our professional services team to review the notice and advise. Formations stands by our work so as long as we worked on your accounting and taxes during the audited period and you’ve provided all answers to our questions and heeded our advice we will assist with the audit defense.