IRS to Audit Large Companies on Tax, Independent Contractor Issues

U.S. tax authorities will start to audit 6,000 randomly selected companies to focus on employment tax issues ranging from executive compensation to fringe benefits, Internal Revenue Service officials said.

The audits will begin in February 2010 and stretch across all types and sizes of companies. The exams will be deeper than typical audits, and also look at the use of independent contractors and other worker classification issues, a spokesman for the IRS said on Friday.

IRS Commissioner Douglas Shulman has said the agency will focus on the wealthy and large corporations as it seeks to recover billions that go unpaid in taxes each year.

About $345 billion goes uncollected from individuals and corporations from U.S. tax authorities each year, according to the U.S. government.

"A significant portion'' of this so-called tax gap comes from unpaid employment taxes, Faris Fink, an IRS deputy commissioner told an accounting conference this week.

Asked how many years the IRS would look at when conducting an audit, Fink said there was no defined time period.

The IRS has not zeroed in on employment tax issues for two decades, according to Anne Batter, an attorney who previously worked in the office of chief counsel at the IRS.

Although the program has not officially started yet, Batter says some of her clients who are large employers have begun to get document requests from the agency.

"The first round of questions we got in this last audit involved deferred compensation, equity, all these fringe benefits,'' said Batter, now with law firm Miller Chevalier, defending clients before the IRS.

"We have definitely had some taxpayers out of the blue (who) have gotten these really big, cumbersome requests for information about their compensation,'' she said.

Source: Insurance Journal