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Tidal wave of employment tax audits just around the corner

If you haven’t heard, the IRS announced last year that they would be randomly selecting 6,000 businesses to undergo employment tax audits, starting in February 2010. It will be the largest such audit by the IRS in 25 years, and is meant to close the “tax gap” between the amount of employment taxes owed and the amount that gets collected.Considering that 70% of federal tax revenues are generated by payroll taxes, it’s easy to see why the government has initiated this process.

For the next three years, 2,000 businesses of all sizes, including non-profits, will be randomly selected to undergo an audit for the 2007 and 2008 tax years. The primary issues that will be targeted during each audit are:


  • Worker classification – employee vs. independent contractor
  • Executive compensation Fringe benefits –employee discounts, personal use of company vehicles, stock-based compensation, etc.
  • Non-filers Reimbursed expenses.

While business owners and executives can’t do anything to avoid being tapped, here are steps you can take to be prepared in case your business is among the 6,000.

  1. Review your current payroll procedures in the targeted audit areas.
  2. Start compiling files now that could be requested during an audit.
  3. Review documents for information that might be protected by attorney-client-privilege.
  4. Develop a clear chain of command to respond to the IRS

If you find your business the subject of an audit, don’t forget that it’s not too late to bring in expert help from legal counsel and additional financial personnel. Our roster of financial professionals is stocked with talented individuals who thrive on the prospect of a challenging assignment.