Employment Audits to Begin in February 2010

[kcjenkins]

In February 2010, the Internal Revenue Service will begin its first Employment Tax National Research Project (NRP) in 25 years. The IRS will randomly select 2,000 taxpayers each year for the next 3 years. Taxpayers will receive notices describing the NRP process similar to those used in recent NRP studies for individuals and Form 1120S corporations.

Examinations comprising the study will be conducted to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers. When completed, this information will help the IRS select and audit future employment tax returns with the greatest compliance risk.

The IRS will:

Review employment tax filings,

Review business records for improperly classified independent contractors,

Review S corporation owner wages for reasonableness, and

Review accountable plan compliance for travel and auto reimbursements.

To conduct its audit, the IRS is probably going to request the QuickBooks file for the business, if they use QB. The IRS reportedly purchased 800 licenses from QuickBooks for training its auditors. If the client provides his or her QuickBooks file to the IRS auditor, he or she also may be giving the examiner access to more than 1 year's information. Will this lead to more multi-year audits?

To limit the client's exposure and provide data only between certain dates, perhaps "Data Transfer Utility" will help. I'd be inclined, in most every case, to advise clients to give them printed files rather than computer backup files, but that's a judgement call for each case. Certainly, for those clients who use QB but only provide you with a printout of balance sheet and/or income statement, a head's up now would be wise, and perhaps some current 'consulting' work can be picked up now till tax season starts?

[kcjenkins]

Here's a good article that you might want to review before you talk to clients about this one.

http://tax.cchgroup.com/images/FOT/Wiggins_MAG_12-09.pdf

[GeneInAlabama]

February would be an excellent time. Goes to show how much the IRS thinks of us. Someone must have stayed awake at night thinking this one up.

[kcjenkins]

Another reason behind this, besides the payroll taxes, may be the Heath-Care Bill. This could help them if they go after small businesses to determine if a business is trying to get around the threshhold requiring mandatory employee insurance. Yes, that would be a back door methodology but, if they can push another 10% of the businesses to provide insurance, then that requires less enforcement against individuals not covered that can have negative repercussions politically. Especially if they finally legislate financial penalties against anyone who is not covered by a plan.

And, no, Jainen,I do not hear any black helicopters. I just have a lot of distrust of our government, and that distrust is growing every day, as I listen to the news. Things like hearing the head of the EPA threatening the Congress that if they don't pass the laws she and the President want, she'll do it by fiat. When did our constitution get amended to make a Cabinet Secretary able to pass laws that Congress refuses to pass?