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.
