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CCH® PAYROLL — 03/03/10

IRS announces audit program

The IRS is conducting 6,000 comprehensive, random employment tax audits as the centerpiece of its National Employment Tax Research Program (NRP), which will help it focus its resources on the industries and practices that contribute most to this portion of the tax gap. The American Payroll Association offers these tips if your company is selected for an employment tax audit under the NRP or under the IRS’s general audit program, or if your company is selected for a comprehensive tax audit.

First steps

An organization may be informed by letter or by phone that it has been selected for an audit. The letter, often referred to as the “confirmation letter” may contain a request for the information the IRS wants to peruse, or this request may come at a later date. In either case, the next step for the IRS is to have the agents who will be conducting the fieldwork meet with the organization.

Before this meeting takes place, the organization should establish an internal team that will coordinate its participation during the examination. This may include representation from payroll, accounts payable, accounting, human resources, internal auditing, general counsel, and outside tax professionals.

A properly functioning internal team should appoint an audit controller to manage the examination and supervise input from employees. This individual should assemble and regulate the flow of information between the IRS and the organization. The audit controller should review all information before it is turned over to the IRS and be present during tours and interviews of employees.

The objective is not to restrict or hide information. Rather, the objective is to make sure the information released to the IRS is organized, complete, and focused.

Requests for information by IRS should be made through the audit controller in writing by use of Form 4564, the Information Document Request. The organization is required to provide the IRS with all the information it is legally allowed to request. However, the organization should also note that it needs to provide no more than the information specifically requested by the IRS.

Appeals

It is perfectly acceptable to have unresolved audit issues with the auditors. If at any time the organization does not feel an agent is conducting himself/herself professionally, the audit should be stopped, and the organization should ask to discuss the matter with the auditor’s supervisor to resolve differences.

Audit issues that cannot be resolved during the examination and which are not part of a closing agreement may be appealed to an IRS Appeals Office. Open audit issues that cannot be resolved with this Office may be litigated through a formal trial. Because of the time and expense involved with litigation of unreconciled tax disputes, this option should be chosen only as a last resort.

(SSA/IRS Reporter, Spring 2010.)

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