Summary

1. IRS Letter 5857 is sent to taxpayers who have fallen behind on their employment tax deposits, notifying them of an impending phone call from a Revenue Officer to discuss the issue.

2. The IRS prefers to resolve tax issues early and may offer payment arrangements or other relief options.

3. Ignoring the letter can lead to escalating collection efforts, including in-person meetings, liens, levies, and the Trust Fund Recovery Penalty (TFRP), which can hold individuals personally liable for unpaid employment taxes.

4. If you receive Letter 5857, it is crucial to take it seriously and respond promptly. Read the letter carefully, gather relevant documentation, and contact a tax attorney to discuss your options and create a plan to address the missed deposits and ensure future compliance.

5. By taking proactive steps, you can protect your business’s finances, maintain good standing with the IRS, and avoid severe consequences.

IRS Letter 5857: FTD Alert Telephone Contact

As a business owner, you have an obligation to make timely deposits of your employment taxes. If you fail to do so and do not respond to notices from the IRS, they may follow up with IRS Letter 5857—a letter notifying you that the IRS will be contacting you by phone. This is part of the FTD Alert Program, which determines when a taxpayer is out of compliance with deposit requirements and strives to bring them into full compliance.

If you’ve received IRS Letter 5857, it is crucial to begin planning for IRS contact. Call the Timothy S. Hart Law Firm to set up a time to talk about your employment tax deposit issues now.

What is IRS Letter 5857?

The IRS sends Letter 5857 when a Revenue Officer plans to contact the taxpayer via phone because they have fallen behind on their employment tax deposits. As a result of policy changes, the IRS no longer makes unannounced contact with taxpayers in regard to Failure to Deposit Alerts.

This process begins when a Revenue Officer receives a Failure to Deposit Alert for a taxpayer. They then send out Letter 5857 to set up a telephone appointment with the taxpayer.

IRS Letter 5857 vs. IRS Letter 725-B

Although both of these letters are used to schedule contact with a Revenue Officer, they differ significantly in outcome. IRS Letter 5857 is exclusively used to set up a phone call with the taxpayer in question, while IRS Letter 725-B is sent when a Revenue Officer wants to schedule an in-person meeting with a taxpayer.

The IRS often begins with phone calls, as this is less expensive and time-consuming for the agency. However, if a taxpayer repeatedly misses scheduled phone calls or ignores repeated notices from the IRS, the agency may move forward with an in-person meeting to drive home the severity of their tax issue.

Why the IRS Sends IRS Letter 5857

The IRS prefers to handle tax issues before a taxpayer is so far behind that catching up is nearly impossible. The FTD Alert program attempts to identify taxpayers who are falling behind early, potentially even before the current quarterly return is due. By reaching out to taxpayers at this stage of the process, the IRS hopes to set up payment arrangements that will bring the taxpayer into compliance and assist them in staying compliant.

Generally, if you receive this notice, it means you have missed at least one deposit or that you have only sent in partial deposits. The letter should contain information about the deposits the IRS has received and how much of a penalty is associated with each deposit.

Missed deposits are often a red flag for businesses, indicating problems with cash flow and a lack of profitability. However, these issues can also indicate a simple lack of organization or a misunderstanding of tax laws and requirements. By addressing these issues as early as possible, business owners may be able to get caught up, limit their financial losses, and remain in business—all without having to pay out of their personal finances for their missed deposits.

What to Expect From Your Phone Call With the IRS

When the IRS sends Letter 5857, they hope to make contact with the taxpayer within a fairly short timeframe—25 days or less.

The goal of an IRS phone call is to help the taxpayer understand their tax obligations and the potential consequences that may come with continuing to miss deposits. Revenue Officers also explain your rights as a taxpayer. Keep in mind that the IRS has one goal when connecting directly with taxpayers—they want to recover the money they are owed in full and as quickly as possible. By resolving the issue sooner rather than later, they hope that you’ll be in a better position to get caught up.

During the phone call, the Revenue Officer will ask about your missed payroll tax deposits and your current financial situation. This is partially to determine whether you are unable to pay or simply refusing to pay. They may also bring up the possibility of a Trust Fund Recovery Penalty, which makes individuals responsible for employment taxes personally responsible for the past-due amount.

If you qualify for certain forms of relief, the IRS officer may bring those up with you. For example, you may be able to apply for an installment agreement or apply for penalty abatement if you are able to get caught up.

What Happens If You Ignore IRS Letter 5857

If the taxpayer does not respond to the letter or ignores other contact attempts, another Revenue Officer may be assigned to the case and more aggressive outreach efforts may start. Once a Revenue Officer is assigned to your case, you should not try to wait out the IRS or hope that your case slips between the cracks. You now have an actual human being checking on your case on a regular basis and determining which collection actions to use to pursue your tax debt.

Should you not respond to the IRS, they may move forward and escalate their contact efforts to include an in-person meeting. This is a big step, as it costs the IRS money to send Revenue Officers out into the field.

If you do not address your missed deposits and catch up, the IRS will move forward with more aggressive collection efforts.

Escalating Efforts From the IRS

It is crucial to take this letter seriously and start talking to a tax attorney about potential resolutions for your debt—otherwise, the IRS will step up collection efforts. They may impose liens or levies. Liens give them an ownership stake in your business assets, limiting how you can use them, refinance them, or utilize their equity. If they pursue a levy, they can actually seize assets and use their proceeds to cover your tax debt.

Some people are unconcerned with these penalties, as they believe the penalties and debt are solely the issue of the business—not those who own or run the business. However, you also have to consider the Trust Fund Recovery Penalty. The TFRP may be assessed against a responsible person who the IRS believes has the duty and authority to collect and pass on employment taxes to the IRS. The penalty is equal to the amount of the unpaid trust fund taxes plus interest. Potential responsible parties include officers of corporations, sole proprietors, employees, trustees, and business partners.

Your Next Steps After Receiving IRS Letter 5857

This is an extremely serious situation, and you must act quickly to protect your business’s finances, standing with the IRS, and overall viability.

• Read the letter in full and do not ignore it. This letter may come after multiple failed contact efforts by the IRS. This is not one you want to ignore—you could have your case assigned to a more aggressive Revenue Officer who is willing to take more drastic steps to collect your past-due deposits. Read the letter in full so you understand exactly what the IRS is requesting, what is at stake, and what they want you to do next.
• Gather important documentation and financial records. During your phone call, the IRS Revenue Officer will likely ask questions about your business finances, your profitability, your accounts, and how you handle your employment taxes. Get all relevant records ready and organized. You may also want to review them so you can answer basic questions without having to search for answers.
• Start working on a plan to get caught up. The IRS can be flexible when it comes to past-due taxes, but there is less wiggle room with employment taxes. Employment taxes should never be touched by employers—just withdrawn and set aside for IRS deposits. If an employer misuses those funds, the IRS views that as a very serious issue. This is a good time to talk to a tax attorney about ways to catch up on your penalties and deposits.
• Talk to a tax attorney about your issues. You may be feeling overwhelmed or like you rein over your head. That’s a big sign that you should talk to a tax attorney about your current tax situation, how you can fix it, and how you can get set up for long-term compliance.

Setting Yourself Up for Future Compliance

Once you have handled your current late deposits and any penalties you owe, it’s time to look ahead to the future and come up with a way to avoid a repeat of this scenario. There are several ways you can protect your business’s taxes and financial status.

First, make sure that you understand Federal Tax Deposit requirements as a business owner. Not knowing these requirements is not considered a valid excuse for a failure to make deposits, so you must take steps to inform yourself and stay on top of any tax changes.

This may also be an excellent time to automate as much of your payroll processes as possible. Doing so allows you to automate employment tax withdrawals and set those funds aside in a separate account so you do not have easy access to them. If this seems a little too overwhelming for you, consider hiring an accountant or payroll specialist who can address these needs.

You should also look into setting up an ongoing relationship with a tax specialist who can help you get and stay compliant. A CPA or tax attorney may be able to provide guidance that keeps you on top of deposit requirements and helps you avoid expensive issues down the line.

IRS Letter 5857 is a red flag that your business might be in financial trouble. Once you reach this point, you may be close to getting so far behind you cannot catch back up. This is the time to take action and avoid the Trust Fund Recovery Penalty, aggressive collection efforts, and loss of your business.

We can help—find out how we can help you address your missed deposits and get back on track by contacting us at the Timothy S. Hart Law Group today.