W-2 Discrepancy - Employee Receives but Employer Does Not File

[EBECatty]

I'm hoping has input on what would happen procedurally here.

Employer distributes W-2s to employees on time. Employees file their individual tax returns, accurately reflecting information on W-2 provided to them, with no problems. (Several hundred employees; not just one or two.) Several years later, IRS sends penalty notice to employer saying SSA/IRS have no W-2s on file for the tax year. Employer insists they were submitted to SSA. Payroll tax reporting was filed and withholding was remitted to IRS during the year in question.

My question is this: When the employees file their personal returns showing W-2 wages, but the IRS has no record of that W-2, would that alone generate a letter/error indicating that the IRS's information doesn't match what the employee reported?

[ESOP Guy]

I worked for the IRS back in the '80s and my impression back then was if they got a W-2 and you did not put it on the 1040 they had a problem with you.  If you put a W-2 on a 1040 they didn't have a record of they didn't care.  They figured no one is going to report income they didn't earn on a 1040. 

So if is still true I would say no they didn't care when they got 1040s with W-2s listed they had no record for the W-2s a few years ago. 

[A Shot in the Dark]

Two or three years ago we had a client receive a penalty notice from the IRS for the same issue, failure to submit the W2's for a given year.  It was discovered that the corporate controller did in fact forget to make the submission.  The client's CPA firm worked with the IRS regarding the issue.  The W2's were submitted and the IRS waived the penalty.  

[hr for me]

I had that happen for one company for one year - where the IRS/SSA came back a year or so later and said they had never received the W-2/W-3 packet. I just checked to see if it had been electronically sent (and in the end I accidentally sent a partial one) and just forwarded on the ones that were missed. No big deal and no penalty.

And you have to remember it's only been this year that both  employee and SSA copies were due by 1/31.  In the past employers had 'til 2/28 to send the W-2s to the SSA.

I honestly don't think anything is checked or found quickly by the IRS. 

[EBECatty]

3 hours ago, ESOP Guy said:

I worked for the IRS back in the '80s and my impression back then was if they got a W-2 and you did not put it on the 1040 they had a problem with you.  If you put a W-2 on a 1040 they didn't have a record of they didn't care.  They figured no one is going to report income they didn't earn on a 1040. 

So if is still true I would say no they didn't care when they got 1040s with W-2s listed they had no record for the W-2s a few years ago. 

This was my fear, truthfully. That even if none were filed no one cared because the employee reported the income. The more logical side of me (which I sometimes try to suspend when dealing with matters like this) says the IRS should flag someone reporting W-2 wages if the IRS has no record of the W-2, but I get why that may be difficult, especially in the current year if the employee files their return before the employer files their W-2s.

[spiritrider]

A problem with this not being caught is that the employee doesn't get any SS earnings credits. This is aggravated by the SSA not sending reports every year.