IRS Tax Examination – Payroll, Employment Tax Audits – Former IRS Agents
IRS Tax Examination – Payroll, Employment Tax Audits – Former IRS Agents 1-866-700-1040
As a Former IRS Agent, I can tell you these are usually nightmare tax audits.
As a general rule IRS has received information that that an employer should have classified their employees under W-2 provisions. As a general rule the IRS does not random sample tax examinations for payroll, employment tax but usually has some solid evidence that a problem does exist.
It is in the best interest of the taxpayer, business, or corporation to get professional tax help to steer them through these tax audits simply because of the damaging results that can come out of the IRS findings.
As former IRS agents, managers, and tax instructors we know the exact strategies to use in your defense to help relieve you of any potential problems or issues.
IRS will use common-law factors to determine whether an employer should be deemed as self-employed or a true employee of the said company.
Please find below the law on these issues.
Should you have any questions contact us for a free consultation and we can review your specific case and issues that you have.
You will speak directly to a former IRS agent, certified public accountant, or a tax attorney. We have over 206 years of professional tax experience and over 60 years of working directly for the Internal Revenue Service.
As I mentioned earlier, do not take on these IRS tax examination audits for payroll and employment tax by yourself unless you have a clear-cut case. Also be aware that if you wind up owing IRS back tax dollars you will need a firm or a company to work out a tax settlement for you. we can handle the entire process.
As a last comment please be advised that IRS has a special audit group that only handles IRS tax examinations of payroll and employment taxes. This group is specifically designed to be IRS tax experts in the issue of employee employer business relationships.
Employee or Employer Test for IRS Tax Examinations for Payroll or Employment Tax Audits
The Internal Revenue Service Factors for Evaluation for Employee or Employer Test
There are two general tests the IRS uses for the determination for the Employment Tax Audits or Payroll Tax Audits
1. Common Law Test,
2. Reasonable Basis Test
Common law test for payroll tax audits or employment tax audits
a. Level of instruction.
If the company directs when, where, and how work is done, this control indicates a possible employment relationship. The IRS will look for training manuals and policies the companies use.
The IRS can use former employees to answer these questions as well.
Amount of training. Requesting workers to undergo company-provided training suggests an employment relationship since the company is directing the methods by which work is accomplished.
The more training, the Service takes the position that the individual is an employer.
b.Degree of business integration.
Workers whose services are integrated into business operations or significantly affect business success are likely to be considered employees. Those whose services are for the production of income to a great level are scrutinized more closely.
Extent of personal services. Companies that insist on a particular person performing the work assert a degree of control that suggests an employment relationship. In contrast, independent contractors typically are free to assign work to anyone. Once again this goes to control.
c.Control of assistants.
If a company hires, supervises, and pays a worker’s assistant, this control indicates a possible employment relationship. If the worker retains control over hiring, supervising, and paying helpers, this arrangement suggests an independent contractor relationship.
d. Continuity of relationship.
A continuous relationship between a company and a worker indicates a possible employment relationship. However, an independent contractor arrangement can involve an ongoing relationship for multiple, sequential projects.
Also, does the individual have another job or is this the sole source of their income. Is their license available to everyone?
e. Flexibility of schedule.
People whose hours or days of work are dictated by a company are apt to qualify as its employees. Does the individual punch a time clock or is the employee free to come and go? Does the person have a key to the facility?
f. Demands for full-time work.
Full-time work gives a company control over most of a person’s time, which supports a finding of an employment relationship. The IRS will look to see if the individual has other W-2 income.
g. Need for on-site services.
Requiring someone to work on company premises—particularly if the work can be performed elsewhere—indicates a possible employment relationship. Are name badges and uniforms required?
h. Sequence of work.
If the company requires work to be performed in specific order or sequence, this control suggests an employment relationship. Does the employee do the same thing every day?
i. Requirements for reports.
If a worker regularly provides written or oral reports on their the status of a project, this arrangement indicates a possible employment relationship. Is there an evaluation given?
Method of payment. Hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee.
Payment on commission or project completion is more characteristic of independent contractor relationships. Time clocks tend to look like hourly employees. What does the tax return of the individual look like?
j.Payment of business or travel expenses.
Independent contractors typically bear the cost of travel or business expenses, and most contractors set their fees high enough to cover these costs. Direct reimbursement of travel and other business costs by a company suggests an employment relationship. Does the individual have a company credit card or expense account, how about a possible credit card of the company?
k.Provision of tools and materials.
Workers who perform most of their work using company-provided equipment, tools, and materials are more likely to be considered employees. Work largely done using independently obtained supplies or tools supports an independent contractor finding. The checking of the individual 1040 for a schedule C expense form is a good cross check for the IRS.
l.Investment in facilities.
Independent contractors typically invest in and maintain their own work facilities. In contrast, most employees rely on their employer to provide work facilities. Are there incentive programs for the individuals?
Realization of profit or loss.
Workers who receive predetermined earnings and have little chance to realize significant profit or loss through their work generally are employees. Is the individual on a pension system or health insurance?
m.Work for multiple companies.
People who simultaneously provide services for several unrelated companies are likely to qualify as independent contractors. That is why the individual tax returns may be checked.
Availability to public.
If a worker regularly makes services available to the general public, this supports an independent contractor determination. Does the individual have other business cards and is their business open to the public?
Does the person have other work going on at the same time?
n. Control over discharge or firing.
A company’s right to discharge a worker suggests an employment relationship. In contrast, a company’s ability to terminate or fire the independent contractor relationships generally depends on contract terms. Is there a contract between both parties.Does it contain accurate details?
o. Right of termination.
Most employees unilaterally can terminate their work for a company without liability. Independent contractors cannot terminate services without liability, except as allowed under their contracts.
Summary.
Remember, each case is based on each set of unique facts and circumstances. Call us today and we will evaluate your IRS tax examination for payroll and employment tax to find out exactly where you stand.