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Oh, boy: IRS to begin random 'research' audits of 6,000 employers

September 24, 2009

The IRS has confirmed reports that it will soon audit 6,000 taxpayers for employment tax liabilities under its National Research Program. Tax Analysts reports ($link):

Different types of business organizations, including partnerships, limited liability companies, and S corporations, will be examined, as the IRS seeks to accumulate data for a statistical analysis focused on various compliance issues, according to John Tuzynski, chief of employment tax in the IRS Small-Business/Self-Employed Division.

"It's very broad. It's across the board of all filers," Tuzynski said.

Data from the audits will be gathered on common areas of noncompliance such as worker classification, fringe benefits, nonfilers, and officer compensation.

Tax Analysts reports that the program will get underway in February and run for three years.

The old battle over independent contractor status is often the most serious battle in employment tax exams. The IRS prefers "employee" status because it can then make the employer withhold and pay FICA and Medicare taxes. It has a much more difficult time collecting from independent contractors.

The IRS is also likely to take a hard look at S corporation shareholders to make sure they are paying "adequate" salaries. As there is almost no guidance as to what is "adequate," this could be interesting.