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Tax Announcements IRS NRP Compensation Audits The Internal Revenue Service Tax Exempt and Government Entities Division has announced that it is planning to conduct hundreds of full examinations in 2010 to gauge compliance with employment tax regulations. The project is part of the agencywide IRS National Research Program (NRP), which will randomly select taxpayers to do a comprehensive set of examinations across all industries and filers of employment taxes. Exempt organizations will be included in the selection for the first time. The purpose of the program is to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers and help IRS target employment tax audits in the future, IRS officials have said. One potential concern is that with the Exempt Organizations unit involved auditors may not limit questions to employment tax issues exclusively. For example, other issues such as reasonable compensation could be raised as well, which is of special concern to a tax-exempt organization, possible impacting its tax-exempt status. Fringe benefits will also be part of the NRP study. Fringe benefits are includable in compensation and may or may not be tax-free to the recipient. Fringe benefits incorrectly treated as tax-free, could result in additional income tax owed by the recipient and the employer would have to pay employment taxes. Of course the IRS will be checking to see if organizations—whether exempt or non-exempt—have properly classified their workers as either employees or contractors. One study has suggested that if only 1 percent of all employees nationally were misclassified, the loss in unemployment insurance revenue alone would be nearly $200 million annually. Also see: |
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