Detailed federal employment tax audits to begin soon.

On February 4, 2010, Mary Gorman, IRS Assistant Division Counsel, announced that the IRS National Research Program study on employment taxes is scheduled to begin by the end of March of this year.  The IRS will randomly select 2,000 taxpayers for comprehensive, random employment tax examinations each year for the next three years.

Igor S. Drabkin, J.D., Former IRS Attorney

Igor S. Drabkin, J.D., Former IRS Attorney

Although the IRS may look at any line on an employment tax return during the audits, the examinations will primarily focus on the following issues:

(1) worker classification (employee vs. independent contractor),

(2) fringe benefits,

(3) officer’s compensation, and

(4) review of 1099s with either no taxpayer identification number (TIN), or TIN/name mismatches.

The IRS is currently training its agents on the procedures to follow during the audits. The bulk of the exams will be conducted by the IRS Small Business/Self-Employed Division. The IRS is hoping that the study will help it improve its examination techniques and close the employment tax gap (i.e., the difference between what is paid in taxes and what should be paid).