Lowrance Law, LLC

The IRS will audit 6,000 U.S. companies to determine whether they pay all their required employment taxes to fund Social Security and Medicare benefits.  See Bloomberg News

The IRS said the audits will provide data for its first statistical analysis since 1984 of how often companies misclassify workers to duck tax obligations, fail to pay taxes on fringe benefits such as personal use of company cars, and improperly pay taxes for company executives. The audits will begin in February, and the companies will be randomly chosen.

IRS will be looking at employee classificaitons, meaning “Independent Contractor or Employee.” It is simple. Companies owe taxes for an employee–state and federal withholding, FICA, FUTA, Medicare etc. Many companies will carry workers as independent contractors in order to save money and not withhold taxes. Many independent contractors should really be classified as “employees” because they meet the working conditions tests used by IRS to determine a workers status.

If a company is audited and workers are found to be employees instead of independent contractors, past taxes will be owed by the company and the worker.

It is best to get legal counsel as soon as you get notice of an IRS audit.

Bill Lowrance

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The IRS is planning more employment tax audits and examinations over the next three years.  A national research project is underway right now and the IRS has announced that it will conduct detailed employment tax examinations of certain taxpayers.  The selection process for taxpayers has begun and the program will last for three years.

The IRS estimates there will be over 3000 examinations and audits.  Although the IRS may look at any line on an employment tax return during the examination, it will primarily focus on the following issues: (1) worker classification (employee vs. independent contractor), (2) fringe benefits, (3) officer’s compensation, and (4) reimbursed expenses.

Often the IRS will receive Form SS 8 from a worker who wants a determination of whether he/she is an independent contractor or employee.  The IRS will collect information from the worker and from the company involved.  The IRS will either conduct a compliance check, make a determination based on the information collected or conduct a detailed employment tax examinations.   If the IRS determines the worker is and was an employee, there are serious tax implications for the employer.  It could be costly for the employer in terms of back taxes. 

There are several ways to challenge the IRS’ decision about whether the worker is an independent contractor or an employee.  It is best to consult a tax professional if you have been contacted about an employment tax matter.

Bill Lowrance
Lowrance Law LLC
McLean, VA
703 506 1600

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Employee or Independent Contractor

February 11, 2009

If someone works for you, are they an employee or independent contractor?  For an employee, you must withhold the usual taxes–social security, federal and state withholding, medicare and unemployment.  The employee pays part of the withholding and you pay additional amounts.  For an independent contractor, you pay a flat amount.  No taxes, social security or […]

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