In an email update, the account firm notes that the IRS has developed a National Research Program (NRP) on employment taxes, and that it was previously anticipated that these examinations would begin in November of 2009. Eisner LLP said that the IRS stated on January 22 that training of agents will be completed by mid-February and that agents will have their case assignments once they return to their respective regions. Thus, the first examinations are expected to begin in late February or early March (see IRS to Mail 401(k) Compliance Questionnaires).
“As with previous NRP projects, the goal of the NRP is, through the conduct of a large number of exams (6,000 under this program), to collect substantial data that will assist the IRS with improving its compliance programs and the utilization of its resources. During the NRP, the IRS will conduct detailed employment tax examinations of employers of various sizes over the three-year period. The employer’s 2008 tax year will currently be the year subject to exam,” according to the update.
Eisner LLP says that employers will be receiving letters from the IRS stating either that they are subject to a ‘compliance research examination’ or a ‘3850-B’ examination.
The NRP examination program is expected to last for three years and approximately 2,000 taxpayers will be examined in each of the three years, according to the update.
Areas of Focus
While the examinations may look at any reporting aspect of the return, Eisner says that the primary areas of focus are expected to be the following items:
- 1) worker classification (employee vs. independent contractor);
- 2) fringe benefits;
- 3) officer’s compensation;
- 4) backup withholding; and
- 5) Form 1099 reporting.
According to the IRS, the selection process for an NRP examination is based on a statistical sample and does not mean that a Form 941 Employer’s Quarterly Federal Tax Return or Form 945 Annual Return of Withheld Federal Income Tax (the return) was incorrectly filed by a taxpayer.
Eisner cautions that taxpayers that have not reviewed their procedures and practices for the above items “should take a fresh look at the law and related regulations to ensure that they are in compliance to avoid the potential for harsh penalties and, in case they are selected for examination, to show that they are now in compliance”.