Debra J. Kern, CPA, Supervisor
In mid February 2010, the IRS began a 3 year, 6000 planned employee tax audit program called the National Research Project.
The key aspects of the audits will be independent contractor status, officer compensation, fringe benefits, and reimbursement of expenses to employees.
The purpose of the planned audits is not only to generate revenue by enforcing employment tax compliance, but also to generate statistical analysis to better estimate the amount of revenue lost due to non compliance of employment taxes. Payroll taxes account for over 70% of federal tax revenue.
The auditors will look at 2007-2008 forms, but the IRS is not limited in its ability to expand the scope of the audit either backwards or forwards into other open employment tax years. The random audits will be conducted among all types and sizes of businesses including tax exempt not-for-profits, but the bulk of the audits will affect smaller businesses.
The best advice for these small businesses is to become familiar with tax laws concerning worker classification, fringe benefits, officer compensation, and reimbursed expenses. If not already in compliance, immediately set up policies and procedures to become compliant. If you need assistance with becoming compliant or have been selected for an audit, seek professional assistance from a qualified lawyer, accountant, or consultant. The auditor will definitely look favorably at the business that can demonstrate that they are trying to become compliant.
The key aspects of the audits will be independent contractor status, officer compensation, fringe benefits, and reimbursement of expenses to employees.
The purpose of the planned audits is not only to generate revenue by enforcing employment tax compliance, but also to generate statistical analysis to better estimate the amount of revenue lost due to non compliance of employment taxes. Payroll taxes account for over 70% of federal tax revenue.
The auditors will look at 2007-2008 forms, but the IRS is not limited in its ability to expand the scope of the audit either backwards or forwards into other open employment tax years. The random audits will be conducted among all types and sizes of businesses including tax exempt not-for-profits, but the bulk of the audits will affect smaller businesses.
The best advice for these small businesses is to become familiar with tax laws concerning worker classification, fringe benefits, officer compensation, and reimbursed expenses. If not already in compliance, immediately set up policies and procedures to become compliant. If you need assistance with becoming compliant or have been selected for an audit, seek professional assistance from a qualified lawyer, accountant, or consultant. The auditor will definitely look favorably at the business that can demonstrate that they are trying to become compliant.
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