Independent Contractor Compliance Blog

In an economic downturn when many companies are cutting back, one federal agency is commencing its largest hiring initiative in decades. The IRS plans to hire more than 3,500 additional enforcement agents. Over 2,000 of the new hires will be revenue agents and revenue officers, the IRS announced in a statement made by Deputy Commissioner for Services and Enforcement Linda E. Stiff announced at the March 30 conference of the Tax Executives Institute.

Where did the IRS get the money?

The American Recovery and Reinvestment Act of 2009 provides $630 million above IRS’s current funding level, specifically to target noncompliance through improvements in collection efforts, technology and additional tax audits.

The IRS is hiring Tax Auditors and Tax Collectors

Revenue Agents and Revenue Officers are the auditors and tax collectors in the IRS; those who establish additional tax liabilities and those who then collect the money from you.

Who are they going after?

It is reported that many new agents will focus on corporate compliance. Also as many as 700 will specialize on international business, which ties into the recent news release by the IRS about closing the “International Tax Gap.” For more information about the International Tax Gap go to my article at:

http://www.collabrus.com/collabrus_blog/2009/01/15/the-irs-is-now-reporting-to-congress-there-is-an-international-tax-gap/

Deputy Commissioner Stiff said, “International issues are, and will continue to be, an area of major strategic focus for the IRS…We cannot allow an environment to develop where wealthy individuals or companies can go offshore and avoid paying taxes with impunity.”

Employment Taxes and Misclassifications

The IRS has been sending hints they are going to step up efforts to enforce IC compliance and crack down on 1099 misclassifications for several years. It would be surprising if a significant number of new agents are not added to this area.

All of this is about the Tax Gap

The IRS has been reporting for years there is an estimated $345 billion annual tax gap. An estimated 10% to 25% is directly related to misclassification issues surrounding independent contractors (those reported on Form 1099).

With this additional funding you may expect the IRS to become more aggressive in their enforcement efforts. Now is the time to get prepared, not after the IRS Agent knocks on your door.