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Business Alert: IRS to conduct employment audits

Filed Under: Business on March 05, 2010

The IRS is launching a three-year auditing project that
will examine about 6,000 U.S. companies for compliance
with employment tax obligations. The project is the
first of its kind in 25 years, and its primary objective
is to collect data to identify areas of noncompliance
across all industry sizes and sectors, including
nonprofits and governmental entities. This data will be
used by the IRS to update its audit selection formulas
in an area where noncompliance is considered a serious
drain on the U.S. Treasury.

Among the issues the audits will look at:

* Classification of workers as employees or independent
  contractors, including executives rehired as
  consultants, dual status employees, and employee
  leasing arrangements.

* Fringe benefits, including expense reimbursement
  arrangements and noncash benefits.

* Executive compensation and fringe benefits, executive
  retirement contracts, golden parachutes, and stock
  options.

Employers can take some steps to prepare for these
payroll tax audits. For example, conduct a mock audit
to check how your company handles the three focus areas -
classification of workers as employees or independent
contractors, fringe benefits, and executive compensation.
Your company may not be selected for the research audit
program, but you also need to be ready to face an audit
following the three-year project.

For more information or assistance, give our office a
call.

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