
Zenwork Inc., a tax compliance software firm based in Fayetteville, filed a lawsuit against the Social Security Administration on Thursday, alleging that the federal agency illegally suspended its access to the agency’s W-2 filing system.
The complaint accuses the SSA of violating the Administrative Procedure Act (APA) by suspending the company’s access without explanation or providing an opportunity to appeal the decision.
The company is seeking an immediate court order to restore its access to the SSA’s filing system, as well as emergency relief by Jan. 24. In a Friday morning order, U.S. District Judge Reed O’Connor directed the SSA to file its response to Zenwork’s emergency motion by Tuesday.
When Arkansas Business reached out to the SSA for comments, the administration stated that “The agency does not comment on pending litigation.”
Zenwork provides automated digital tax form submission solutions for businesses at the federal, state and local levels. It works with the SSA, the Internal Revenue Service (IRS), state tax authorities and other private firms to facilitate wage report compliance.
According to the complaint, Zenwork was unable to submit approximately 8,000 W-2 forms, with submissions seemingly disappearing into a “black hole” beginning on or around Aug. 26. After Zenwork reached out for technical support for the submissions, the SSA on Nov. 4 suspended its account for filing W-2 forms and has not engaged with the company to fix the issue.
Zenwork said it had only been told that its account was suspended over possible terms of service issues. The company said it had reached out to the SSA more than 50 times since the suspension in November, including through phone calls, emails, letters and “at least four in person visits.”
The complaint states that Zenwork did receive a one-page letter Nov. 19 stating that SSA was suspending its e-filing privileges because SSA “suspect[ed] fraud or misuse related to wage reports submitted to us.” The SSA stated that, “[w]e attempted to work with you on this issue, but it is not resolved.”
But the suit alleges that the SSA did not explain what the issue was.
The lawsuit claims the SSA then sent a letter to Zenwork’s customers, including thousands of employers, informing them that Zenwork could not file W-2 forms, and encouraged those customers to file through an alternative provider. Zenwork said it did not learn of the letters until after they were sent, when customers began reaching out.
The complaint states that Zenwork did cooperate with an SSA investigation in July regarding six Zenwork customers suspected of potential fraud, and that the company blocked the customers’ accounts.
According to court documents, the SSA’s action effectively prevents Zenwork from performing business functions for its clients, which include processing W-2 forms for thousands of businesses and employees.
The filing deadline for both electronic and paper W-2 forms is Jan. 31.
Zenwork argues that the SSA’s actions are unlawful under the APA, which requires federal agencies to provide clear explanations for decisions and offer affected parties an opportunity to respond. The APA establishes the framework for how federal agencies must interact with businesses and individuals, including requirements for transparent decision-making processes and proper notification procedures.
“The Federal government cannot take actions that will cause a private sector company to cease its operations without informing them why and without providing them the opportunity to appeal,” Josh Ungerman, partner at Meadows Collier Reed Cousins Crouch & Ungerman LLP of Dallas, told Arkansas Business Thursday night.
The Texas firm is representing Zenwork in the lawsuit. Zenwork told Arkansas Business that the filing was in Texas because most of the company’s executives work there, though Zenwork was founded in Arkansas and maintains its headquarters in Fayetteville. It was officially filed in U.S. District Court for the Northern District of Texas, Fort Worth Division.
“Zenwork, one of the largest e-file providers in the country, during the busiest filing time, has never received any administrative process to either prevent or unwind the Social Security Administration’s unilateral actions and that is a violation of the Administrative Procedure Act,” Ungerman said. “We are requesting that a judge immediately order the Social Security Administration to restore Zenwork’s ability to file its customer’s W2s.”
The company said it has been working to find another solution for its customers to file by the upcoming deadline. If the suspension is not lifted, the lawsuit claims Zenwork will “suffer devastating and irreparable harm.”
The SSA had not filed a response to the lawsuit Friday morning.