Agents Instructed to Add Tip Employment Tax Exams to the List of Items Where Contact is Not to Be Initiated by Phone

Just less than a month after indicating that initial contacts for employers who may be falling behind in their federal tax deposits will not be made by phone, the IRS has added another category to the "don't call first" list.  the same guidance has now been issued related to payroll exams looking at tip reporting, with SBSE Memo SBSE-04-0816-0031 providing that initial contact in those cases will not be conducted by telephone.

The IRS is reacting to the increasing number of scam phone calls to taxpayers claiming to be from the IRS and threatening dire consequences if some action is not taken immediately.  In response the IRS is working on modifying guidance in the Internal Revenue Manual to limit cases where the first contact with a taxpayer will be by phone.

The IRS has expanded the ban on initial contact by phone to examinations of tip income.  The IRS in the next year will modify the Internal Revenue Manual in this area to conform to this “no phone calls to start” rule as follows:

Employer Tip Examinations

(2) As it is critical that examiners meet with the employer and tipped employees to arrive at the correct tip income and to determine the factors affecting how this income is to be reported on the employer's and employees' tax returns, the examiner should contact the employer to schedule an appointment, using the appropriate initial contact/appointment letter, Letter 3850, Employment Tax Appointment Letter, or Letter 3851, Employment Tax Call-in Appointment Letter. In no instance will initial contact be made by telephone. If the taxpayer proposes a reasonable change to the appointment date/time, the examiner may accommodate the change and follow up with Letter 3253, Taxpayer Appointment Confirmation Letter and Letter 3254, Representative Appointment Confirmation Letter. The examiner must enclose an Information Document Request (IDR) with the examiner's confirmation/appointment letters, Publication 1 and Notice 609. The IDR should be tailored for the particular taxpayer.

Even though it will take some time for the language to make its way into the IRM, agents are instructed to begin applying these rules immediately.

The memo also instructs the agent that phone contact can only be made after the taxpayer has had time to respond, with the memo setting that period at 14 days after the mailing of the notice.

The tip memo also goes on to indicate that we’ll likely see additional guidance in the same vein from the IRS.  The memo continues “[w]e are evaluating our other contacts with taxpayers, outside of the examination context, to determine whether they present risks with respect to phone scams and other such threats.”