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IRS to audit 6,000 firms to test employment tax compliance

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in Small Business Tax,Small Business Tax Deduction Strategies

Starting in February 2010, the IRS will begin to audit 6,000 randomly selected employers to give the agency a snapshot of employment tax compliance in the United States.

The audits will stretch across all industries and company sizes, and will focus on employment tax issues ranging from payroll taxes to independent contractor status to executive compensation.

Why now? The IRS says the National Research Program (NRP) audits will generate the agency’s first statistical analysis of employment tax compliance since 1984.

The government estimates about $345 billion worth of taxes goes uncollected each year. A deputy IRS commissioner said last month that “a significant portion” of this so-called tax gap comes from unpaid employment taxes.

The audits will include face-to-face interviews, plus a line-by-line review of companies’ employment tax returns (IRS Form 941) and related forms and documents. Audits will mainly focus on tax returns for the calendar years 2007 and 2008. 

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