Letter 2801C – Withholding Compliance Program and “lock-in” letters.

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  • #10636
    Dan Gibson
    Participant

    Hi Everyone: One of my clients got one of these letters from the IRS. Apparently, the IRS sent their employer a “lock-in letter” instructing the employer to limit their W-4 to Single and allow zero exempts. The client is married with one child. I reviewed their W-4 and they claimed 5. In the IRS’ defense, the client is habitually underpaid each year and owes about 20% of the overall tax liability when we do their return. This year, they had to call the IRS to allow them to make the payment owed on the return by November 15. Surprisingly, this is the first time that I’ve seen such a Letter, but after reviewing all the facts understand the IRS’ position. However, just wondering, in my defense of the client, can the IRS reach down that far and dictate to the employer how the W-4 should read, which will likely now result in the client being overpaid. Would like to get your thoughts on this. Thanks so much.

    #10650
    Gary Whidby
    Blocked
    #10789
    Eric Green
    Keymaster

    Yes they can. The alternative is to levy the wages to make up the shortfall, but this way is easier.

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