New IRS Audit Focus | Tax Tip of the Week | No. 63
Tax Tip of The Week | October 20, 2010 | No. 63New IRS Audit FocusIRS Audits We Haven’t Seen In 25 YearsEmployment Tax AuditsThe IRS is in the process of auditing 2,000 firms, and will be auditing an additional 6,000 firms in the upcoming years. While similar to traditional audits, these Employment audits will focus more on employment tax and compliance issues. An IRS spokesperson said, “A National Research Project (NRP) is the first the agency has undertaken in 25 years. During that time business practices have changed significantly, prompting the need for this study”.In particular, the IRS is looking for data that will allow for a better understanding of just how well corporate tax filers comply with regulations. Equally important, the agency is looking to boost its knowledge of the “employment tax “gap”. The tax gap is the difference between the amounts that taxpayers should pay, and the amounts they actually pay on a timely basis.Key components of the audit will include:- Worker Classification: The question of whether a worker is an employee or an independent contractor.- Executive Compensation: This includes non-salary compensation such as loans, travel, deferred comp, and stock-based compensation.- Fringe Benefits: To ensure that proper tax treatment is given to such perks as company cars, club dues, cafeterias and bonuses.- Payroll Taxes: Close attention will be given to timely and accurate payments of payroll taxes. In addition Form W2 and Form 1099 compliance will also be audited.As we have stated many times here, your best defense in an audit is accurate recordkeeping.We encourage you to call us to make sure your employment records are in compliance before the IRS comes knocking.As always, give us a call if you have any questions.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.Rick Prewitt - the guy behind TTW...until next week.