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July 15, 2009

Internal Revenue Service Audit of Employment Taxes

The IRS recently announced that it will begin gathering data for its National Research Program to improve its compliance programs and better use its resources in the employment tax area.  In most National Research Programs the IRS conducts full blown audits of taxpayers to gather data that is common in a particular industry or type of tax, so that the information learned from those audits can be used to develop other programs within the IRS.

According to other media outlets, the selection process for the employment tax National Research Program will be done on a statistical sample and will last about three years beginning in November 2009.  As many have seen, the IRS is already conducting a good number of employment tax audits and generally are very effective with those audits.  We will have to wait and see how this new program will impact the audits and whether or not the audits actually increase.

To be sure, however, if you are a taxpayer or a professional advisor of some sort, you should ensure you contact a tax attorney that specializes in IRS audits to assist once you have been notified of an audit.  It is not in the taxpayer's best interest or your client's best interest to have an attorney or accountant that does not specialize in tax controversy (including audits) to handle the matter.  It is very important to know the procedures involved, the people involved, how to present the case, strategy development, etc.  I recall sitting in a meeting at my prior firm where one of the tax attorneys said that they enjoy handling an IRS audit once in awhile because it provides a change in their everyday work that this person did.  I remember thinking and wanted to say to that individual, wow, I really want to hire you to handle my audit.

Any way, I have attached the IRS' training guide on one of the main issues that come up during an IRS employment tax audit.  The issue involves the determination of independent contractor versus employee.  It is very good reading. 

Download Outline - Independent contractor versus employee - IRS training material

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July 15, 2009

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