Employment tax audits: Identifying pitfalls and increasing compliance

Private Company Services Tax Insight

Any business facing an employment tax examination is likely to be subject to scrutiny on certain key areas. The IRS historically has focused on and continues to emphasize fringe benefits, worker classification, travel expense reimbursements, and executive compensation. Additionally, international payroll is a new area of emphasis for the IRS in its examinations and could affect businesses with even a small number of foreign inbound or US outbound employees.

IRS employment tax agents look into all of these issues regularly and have developed broad information document requests to identify potential gaps in compliance. The evolution of the IRS’s Questionable Employment Tax Practices Program to share information with at least 37 state agencies heightens the importance for businesses to ensure they are currently compliant.

To achieve increased certainty, employers should review existing policies and procedures, even before an examination, to ensure they are appropriately identifying potential missteps and improving processes in these areas in order to minimize tax and penalty exposure. This article highlights a few of the key areas commonly examined by employment tax specialists and ways for businesses to proactively increase their compliance in these areas.



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