The New IRS Employment Tax Audit Initiative

Strategies to Prepare for Audits Given Anticipated Tax and Compensation Targets

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, June 1, 2010

Recorded event now available

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Program Materials

This webinar will prepare advisors for the realities of a tougher IRS approach to auditing corporate taxpayers on withholding tax compliance. The panel will offer alternatives to improving ongoing remittance of tax and audit planning and preparation.

Description

Over the last couple of months, the IRS has added teeth to its vow to crack down on employment tax non-compliance. The first audits in a three-year initiative have already started. This push could also extend into fringe benefits and executive compensation—and encourage states to act.

Large and small companies will be among 2,000 businesses audited each year as an outgrowth of the Service's National Research Program. Expect auditors to hone in on misclassification of independent contractors and inspect fringe benefits, Sect. 409A deferred compensation, and back-up withholding.

The audits are expected to be extremely detailed and time-consuming, with the potential to run concurrently with, or to precipitate, income tax audits or trigger a state employment tax audit, thanks to information-sharing. Tax professionals must thoroughly understand the IRS plan and prepare for it.

Listen as our panel of experienced federal tax advisors prepares you for tougher employment tax enforcement and audits, offering best practices for compliance reviews and audit planning.

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Outline

  1. Background on federal employment tax oversight to date
    1. Enforcement has been relatively light compared with corporate income tax
    2. Most cases handled on audit; penalties light
    3. Shift in priorities with federal budgetary plight in 2008 and 2009-06-19
    4. Senate committee urges more prosecution of employment tax abuses
    5. Tougher IRS posture starting in 2009 with designation of withholding tax as a top enforcement priority for the Justice Department Tax Division
      1. Business taxpayers immediately notice tougher stance by auditors
      2. Prospect of parallel civil penalties such as tax liens
      3. Prospect that some cases will be referred for criminal prosecution
  2. Details of IRS 2010 employment tax audit initiative
    1. Focus on 6,000 small and large businesses over three years
    2. Additional focus on other areas
      1. E.g. Sect. 409A deferred compensation, executive compensation, back-up withholding, Forms 1099
    3. Running concurrently with income tax audits in some cases, or precipitating income tax audit
    4. Information-sharing with state agencies
      1. Raising prospect of parallel state actions
  3. Preparing for a possible federal audit
    1. Audit planning
    2. Reexamining a company’s withholding tax compliance
      1. Record in on-time remittance of full amounts
      2. Classifications of staff as either permanent employees requiring withholding, or as independent contractors
      3. Nature of payments to employees: Cash or off-the-books

Benefits

The panel will analyze these and other critical aspects of the new IRS employment tax audit initiative:

  • How will the IRS choose which small and large companies to audit?
  • Beyond the independent contractor classification issue, which fringe benefit, deferred and executive compensation, and back-up withholding activities will auditors target?
  • What is the likelihood that state authorities will be directed to also look at a company's employment tax compliance?
  • What best practices can help prepare for this tougher audit enforcement?

Faculty

Anthony Arcidiacono
Anthony Arcidiacono
Senior Manager, National Tax Practice
Ernst & Young

He also is attached to the firm's Tax Controversy and Risk Management Service Practice and works primarily with...  |  Read More

Edward Froelich
Edward Froelich

Of Counsel
Morrison & Foerster

He is a federal tax litigator and tax controversy specialist who previously in his career litigated for the Justice...  |  Read More

James Merritt
James Merritt

Senior Counsel
Morrison & Foerster

His federal tax litigation work covers civil and criminal litigation, audits and investigations; and he has appeared at...  |  Read More

Ira Mirsky
Ira Mirsky

Partner
McDermott Will & Emery

His practice emphasizes employment tax and information-reporting issues in general, tax controversy matters related to...  |  Read More

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