The IRS announced that it will begin conducting detailed employment tax audits on certain taxpayers as early as November of this year. Employers will be selected for audit based on a statistical sampling method, and not necessarily on suspicious past tax returns. One IRS representative speculated that there may be 6,000 of these employment tax audits over the next three years. Among the employment tax items the IRS may scrutinize on an audit are: worker classification, fringe benefits, officers’ compensation, and expense reimbursements.

Now is the time to review your policies and procedures to (1) be ready for any potential audit and (2) correct any errors that may have arisen before you are selected for an audit. Among the steps an employer should consider taking are the following:

In addition, if you are an employer that has outsourced its payroll functions to a third-party, it is important to remember that the employer remains liable to the IRS for any employment tax violations. To identify and prevent issues you should:

Given these impending audits, it is also important to remember that other agencies and states, including North Carolina, routinely share information with the IRS, including information regarding tax avoidance schemes and questionable tax practices. This information sharing could lead to additional investigations from other agencies and the state.

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