As noted by Janet Novack at forbes.com, Judge England of the District Court for the Eastern District of California last week issued an order permitting the IRS to serve a “John Doe” summons on the California State Board of Equalization. The summons seeks the names of residents who transferred property to relatives for little or no considerations. The IRS hopes that the information it receives will identify individuals who should have, but did not, file Forms 709 – Gift Tax Returns. (more…)
Posted tagged ‘IRS Audits’
By Phil Karter
As reported earlier this week in the tax press, the recently completed initial filing season for Schedule UTP produced at least one major surprise in the eyes of IRS officials, who had anticipated a much greater number of items listed on the average Schedule UTP than actually materialized. In fact, the IRS’s predictions were off by a wide margin, with the number of disclosed positions of the 1,500 or so Schedule UTPs filed averaging only slightly more than three items per schedule for CIC taxpayers, and less than two items for non-CIC taxpayers. Pre-filing expectations of item disclosures had been many multiples higher, perhaps even reaching as high as 100 or more separately stated positions. Although such predictions may have been wildly optimistic from the IRS’s standpoint, one must now wonder whether the apparent failure of the first filing season to meet the Service’s anticipated disclosure bonanza will hasten efforts to extend the penalty regime to specifically target what are viewed as incomplete or inadequate disclosures on Schedule UTP. (more…)
The IRS National Employment Tax Research Project has started. On November 9, 2009 the IRS announced its first employment tax research project in 25 years. Under the program, which will last from 2010 through 2012, the IRS will audit 6,000 employers randomly selected from all employment tax filers. It is our understanding that the initial letters for the first 2000 employees selected to be part of the study have gone out and the audits will commence in May, 2010. The IRS will focus on historic areas of non-compliance including (i) the misclassification of employees as independent contractors, (ii) executive compensation, including stock options, (iii) fringe benefits (and whether taxable fringe benefits have been properly reported in employees income), and (iv) return filing compliance, including the filing of W-2s, 1099s, 940s and 941s.
Since the age-old issue of employee versus independent contractor is going to be a significant part of the study, employers selected as part of the program should conduct a review of any independent contractor issues that the company might have. If the company has a significant number of workers that are treated as independent contractors, the company should conduct a review of the status of the independent contractors under the common law “control” tests and the 20-factors listed by the IRS in Rev. Rul. 87-41. The company should marshal its evidence to support the classification of workers as independent contractors to face any potential challenge by the IRS.
Even if a company is not selected as part of the IRS’s National Research Project, the company is not necessarily off the hook. The IRS is increasing is enforcement efforts in the employment tax area so employment taxes are likely to be the focus in the audit of any company with a significant number of workers, particularly in cases in which the company treats large numbers of workers as independent contractors.
For more information on the IRS’s National Research Project or on any employment tax issues, contact Kevin Johnson at email@example.com
I was recently interviewed on the subject by Employee Benefit Adviser News which you can listen to here.