IRS to Audit 6,000 U.S. Businesses

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Business Alert:  the IRS is to conduct employment audits on 6,000 U.S. companies in search of unpaid employment taxes.

Starting February 2010, the IRS launched a three-year auditing project to collect data to identify areas of noncompliance.  2,000 firms (including nonprofits & governmental entities) will be selected at random each year to be examined. 

The government estimates that about $345 billion worth of taxes goes uncollected each year.  A deputy IRS commissioner said last month that "a significant portion" of this tax gap comes from unpaid employment taxes.  This new project aims reduce that gap by ensuring that all U.S. companies are paying to fund Social Security & Medicare benefits. 

The following are areas that auditors will be interested in:

• Worker Classification:  Are workers properly classified as employees or independent contractors?   This includes executives rehired as consultants, dual status employees, and employee leasing arrangements.
• Fringe Benefits (including expense reimbursement arrangements and non-cash benefits):  Problems arise in cases where employees use company cars, planes, vacation homes, ect. for personal use.  The IRS wants to ensure that usage of these benefits are taxed accordingly.
• Executive Compensation:  fringe benefits, executive retirement contracts, golden parachutes, and stock options.

Although there is nothing you can do to prevent your business from being selected for an audit, there are proper steps that can be taken to avoid penalties assessed.  We advise you to seek assistance from an accountant or attorney to review your employment tax record keeping.  If an issue is self-found and addressed, the penalties are much less severe than they would be if the IRS found them.  

Should you have any questions, or wish to discuss this further, please do not hesitate to contact us at 704-341-9611.