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The IRS's New Agenda
By Jerry Kalish
It’s back! Actually, it never went away. It’s the issue of worker classification, or rather, misclassification. I’ve written about this matter before. (On employment-tax penalties, on independent contractors, and, again, on independent contractors. Hey, it's an important issue!) And now it’s a high priority item for the Internal Revenue Service, which just announced an audit initiative to study compliance with payroll taxes.
Why now? The IRS initiative comes on the heels of renewed Congressional interest in worker misclassification, and an August 2009 report issued by the Government Accountability Office.
The IRS is planning to use 200 to 300 of experienced and specially trained agents to conduct these audits of approximately 6,000 companies over the next three years. The companies selected at random will represent a broad cross-section of sizes and industries.
But this new IRS initiative is not just about worker classification. In addition, the IRS says, the audits will also focus on:
* Fringe Benefits: whether taxable benefits are misclassified as non-taxable, such as an employee using a company car to commute to and from work.
* Reimbursed Expenses: whether payments made by employers to reimburse employees for qualified business expenses made pursuant to an “accountable plan” that meets certain requirements, including proper accounting and reasonableness, are not actually taxable compensation.
* Officer Compensation: whether compensation paid to an owner/employee of an S corporation is “reasonable” and not improperly classified as a distribution of profits on which no payroll taxes are paid.
* Non-filers: Always!
Tax experts say that the focus of the initiative is to close the “tax gap," or the difference between taxes owed and taxes collected. Unemployment taxes are the second largest contributor to the tax gap, with underreporting of income by individuals being first.
If you’re at all concerned, maybe it’s time to conduct an internal compliance review and to talk to your tax advisor. There’s still time to prepare.
Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.
Comments (0)November 3, 2009 10:19 AM
