The IRS Audit Blog

Archive for December, 2006

• Check this out if you have children

Got kids? They may have an impact on your tax situation. Listed below are the top things the IRS wants you to consider if you have children. – Dependents. In most cases, a child can be claimed as a dependent in the year they were born. For more info …

Paying Taxes : How to File Taxes If Your Status Is Self-Employed

The IRS initiated a new National Research Program Initiative in November 2009 simply known as the Initiative: an industry wide detailed audit of employment taxes for 6,000 randomly selected businesses for the duration of the next three years. The intent of the Initiative has two aspects: ONE: assess systemic employment tax compliance; and TWO: collect assessments from delinquent employers.

With tax revenues dwindling from the recession, the U.S. Treasury Department is stepping up efforts to close the tax gap the difference between overall tax liabilities and taxes paid to the IRS. Auditing employment taxes is seen by the IRS as a crucial means of closing the tax gap. For tax year 2001 for example, the gross tax gap was estimated by the IRS at around $345 billion, with underreporting of employment taxes accounting for around 17% of the tax gap.

The IRS will audit businesses to ensure that Federal withholding taxes are deducted and paid over to the government from employees wages for Social Security and Medicare as well as Federal Unemployment taxes. An business owner found to be in noncompliance could face harsh civil penalties and interest on unpaid taxes. These penalties could have a particularly severe impact on small business owners.

The IRS has identified four areas to focus their auditing efforts under the Initiative, including:

Worker Classification: i.e. whether an employer properly classifies an employee as an employee or independent contractor for tax purposes. Determining which depends on the behavioral, financial and type of relationship the company has with the person performing the work.

Employee Fringe Benefits: A fringe benefit is a form of pay for the performance of services. i.e. benefits such as insurance coverage, company car or child care, etc. that are provided by employers tax free to employees but not to independent contractors.

Reimbursed Business Expenses: e.g. reimbursement for taking a client to lunch, purchasing office supplies: which requires a written business expense plan. I.E. You must have paid or incurred expenses that are deductible while performing services as an employee. You must adequately account to your employer for these expenses within a reasonable time period, and you must return any excess reimbursement or allowance within a reasonable time period.

Compensation of Owners: who are also employees of the company, whereby unpaid taxes may result in personal liability for the employer.

Harsh penalties can occur for employers that are in noncompliance with employment tax lawaE¦and now that the employment tax audit Initiative is upon us the IRS has been reported to have already begun the process of selecting businesses for audit of their employment taxes. In order to ensure that these procedures are in compliance with applicable tax law is critical and can save time, money and heartache in the event of an audit.

For example, the Internal Revenue Code has specific requirements for taxing the Compensation of Owners depending on business structure set forth in its operating agreement and what classification the owner has elected. Employers should consider consulting with experienced counsel in preparation for the Initiative and in the event of an audit of their compensation methods to its owners is in question.

Dependent Eligibility Audits: Self-Awareness for the Self-Insured

With healthcare costs continuing to rise at double-digit rates and the potential of healthcare reform increasing the burden on a company’s employee healthcare costs, a successful strategy for controlling costs is through a dependent eligibility audit.

37. IRS Audit Process

Obama’s $3.8 trillion proposed budget: Parsing the tech priorities

President Obama rolled out his $3.8 trillion proposed fiscal 2011 budget and technology projects abound throughout the Federal government’s departments and agencies. We read the budget with technology in mind so you don’t have to.

GAO: TARP Testimony on Status of Efforts to Address Transparency and Accountability Issues

900 Vermont nonprofits lose tax-exempt status

The Internal Revenue Service has announced that about 900 nonprofits in Vermont — out of about 275,000 organizations nationwide — have lost their tax-exempt status because they failed to file required reports. That means donations to those nonprofits are no longer tax-deductible.

Employer Identification Number (EIN) Does your small business need one and how to get one.