As we wrote about in our last seven posts, the IRS continually analyzes compliance levels for entities, issues and industries by conducting hundreds of compliance projects and initiatives each year. Leading up to the start of the government’s fiscal year on Oct. 1, the IRS has announced emerging or significant areas that it will prioritize for the coming year.
Many businesses are either unaware of the differentiation between an employee and an independent contractor according to the IRS.
Eighth target area for IRS tax audits:
Proper worker reclassification. Almost all business audits also include employment tax issues. In particular, the IRS is interested in worker status. The IRS understands that businesses have an economic incentive to misclassify workers as independent contractors rather than employees. It costs about 30% less for a business to employ an independent contractor than an employee. The IRS thinks there is significant noncompliance in worker classification and will continue to focus its field examination resources in this area.
This will be one of the most heavily scrutinized areas, in our opinion in the coming months.
Should you find yourself in need of advice or assistance in an IRS audit, contact us.