Jim Beddow, CPA

Beginning in February, 2010, the IRS will begin a new round of audits in its National Research Program. These will be detailed examinations designed to determine the extent businesses comply with employment tax rules. The IRS uses the results to set statistical metrics used to make choosing returns to audit more efficient.  Supposedly the IRS will focus on four areas:

• S Corporation officer salaries and compensation
• Work classification issues – The classic independent contractor vs. employee issue that I’ve written about previously.
• Fringe benefits accounting and documentation for company cars.
• Accountable vs. Nonaccountable employee reimbursement plans. If done properly these are tax free, but taxpayers apparently abuse these.

Call me if your employment records aren’t and plans are not in order. There are many things you can do to reduce the bite of an audit, but it’s critical you be proactive about it. Once the notice from the IRS arrives, it’s too late.

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