Processes Are Needed to Link Third-Party Payers and Employers to Reduce Risks Relating to Employment Tax Fraud

The Commissioner, Small Business/Self-Employed Division, should partner with the Bureau of the Fiscal Service on the development of a formal plan that includes action items, system requirements, timeframes, etc. for the implementation of the process to use the EFTPS to link PSPs with the employers that use their services.

The Commissioner, Small Business/Self-Employed Division, should establish a program in which employers can inform the IRS as to the PEOs that they authorize/designate for filing and payment of employment taxes (similar to the procedures for those employers using the services of a Reporting Agent and Section 3504 Agent). Once in place, ensure that tax account records are updated to reflect this information.

The Commissioner, Small Business/Self-Employed Division, should require those PEOs with a service agreement, to attach a Schedule R to their Form 941 tax return listing the employers on whose behalf the PEOs are filing.

The Commissioner, Wage and Investment Division, should develop processes and procedures to ensure that Form 8655 authorization information captured in the IRS's systems is accurate and correct the errors associated with the 11 Forms 8655 TIGTA identified.

The Commissioner, Wage and Investment Division, should develop processes and procedures to ensure that employees processing Forms 2678 accurately assign indicators to both Section 3504 Agent tax accounts and associated employer tax accounts, including correcting the errors associated with the 13 Forms 2678 TIGTA identified as having inaccurate information.