IRS Worker Classification Study: A New Taxpayer Challenge

IRS Worker Classification Study: A New Taxpayer Challenge

IRS training materials released in April will be used in the National Research Program (NRP) Employment Tax Reporting Compliance Study.  These audits will cover 6,000 taxpayers in the small business, large business, and tax-exempt and government sectors, with 2,000 taxpayers being selected each year for a three-year period beginning in 2010. The taxpayers are supposed to be selected at random. The audits will be conducted for research purposes to assess the tax gap caused by worker classification misclassification issues. But  the scope of the 2010 audits will include any and all tax issues identified in all four quarters of the 2008 tax year.  The overall depth of the examinations is the same as is used in traditional, operational examinations. The training materials define three primary issues of interest:

  1. 1099 Filing Checks, which includes worker classification;
  2. Back-up Withholding; and
  3. Executive and Non-Executive Fringe Benefits. 

Furthermore, auditors are instructed to expand the audit as necessary to examine all issues that impact the NRP Employment Tax year.  This could include expanding the audit to cover issues involving executive compensation, such as compliance with IRC Sec. 162(m) and IRC Sec. 409A, prior and/or subsequent open years, and/or related entities.