More than 75% of the intensive line-by-line payroll returns audited under the IRS’ National Research Program (NRP) have been completed, with the remainder to be finished by the end of this year, according to IRS spokesperson Paul Carlino. NRP audits are intended to give the IRS baseline compliance data for future enforcement efforts.
Trouble spots identified so far: Interim findings reveal issues with executive compensation and Form 1099-MISC. Carlino said further analysis is to come.
Executive compensation. Executives’ compensation is rarely limited to cash. Companies often extend loans to their executives, for example. Bona fide loans aren’t includable in executives’ incomes. What to look for: Bona fide loans will be accompanied by a contemporaneously signed promissory note; repayment will be made under a specific schedule; interest will be owed; collateral will be given to secure the loan; and the loan will be listed on the company’s balance sheet as a receivable. If any of those pieces are missing, the loan may be disguised compensation.
Executives receive all the fringes rank-and-file employees receive, such as health insurance and a 401(k) plan, but they also usually receive more. What to look for: Misreported fringes—personal use of company cars, skyboxes at sports arenas, executive dining rooms, personal use of a corporate vacation property and chauffeur services.
Form 1099-MISC. According to Carlino, Forms 1099-MISC aren’t being completed, or forms are missing recipients’ Taxpayer Identification Numbers (TINs)—Social Security numbers or Employer Identification Numbers. Rule: You must provide 1099-MISC forms to noncorporate independent contractors who are paid at least $600 in cash for services during the year. To request independent contractors’ TINs, have them complete Form W-9.
Confirm that contractors’ names/TINs match before filing by using the IRS’ online TIN matching program. Interactive TIN matching accepts up to 25 name/TIN combos onscreen; bulk TIN matching allows up to 100,000 name/TIN combos to be matched via a text file submission.
TIN matching is part of the IRS’ suite of e-services.