Independent Contractor Compliance Blog - by Collabrus™

A professional website (AccountingWEB.com) is warning CPAs to prepare their small business clients for an increased IRS audit effort. Accountingweb.com provides accounting news, information, tips, tools, resources and insight to assist CPAs and other tax professionals to better serve their clients.

What is a “small business” from the government’s point of view?

Based on my experience working in government we classified a small business as having less than 100 employees. In some cases, 250 employees is the dividing line.

What was the warning?

A recent article on their website warns: “Past due payroll taxes can cause you to lose your business and in some cases, your freedom. The IRS is focusing increased tax compliance efforts on small businesses so it is important to know the common payroll tax audit triggers and learn how to avoid severe IRS penalties, huge tax debt and federal criminal investigation.”

What are payroll tax audit triggers?

I cover the “top triggers” of an payroll tax audit in my Breakfast Briefings, which are free seminars covering a host of topics about independent contractors, tax audits, and how to protect your company. It could be the best spent two hours you’ve spent in a long time. If you are interested in attending one, you can find more information on this website. Hopefully I’ll see you there.

The article goes on to advise CPAs that:

• “…the IRS tends to focus their enforcement efforts on small businesses, especially during economic downturns.”
  

• You can lose your business due to extremely aggressive IRS collection tactics for past due payroll taxes.”
  

• “…There are three major penalties you can be hit with (failure to file, failure to deposit, and the failure to pay), which can add up to about 33% plus interest…”
  

• “…The IRS can come after business owners individually for payroll taxes owed. The IRS can access what is called the Trust Fund Recovery Penalty (TFRP) against owners and shareholders. The IRS is the only creditor on the planet that can “pierce” the corporate veil and go after individuals…”

There is more…

Actually, the author of this article neglected to note that under Section 1735 of the California Unemployment Insurance Code California’s EDD can also pierce the corporate veil and collect from the responsible corporate officers directly and personally, for payroll tax liabilities, including penalties and interest. The EDD is much more aggressive in this area, and after hitting you with a large state tax assessment, will typically share the information with the IRS-a double threat.

If you are a professional take responsibility for your company’s welfare now!

The points made in this website article are well taken and as professionals (CPA’s, HR Directors, Procurement Managers, or others involved in engaging IC’s) you must look out for the well being of your company. You need to be sure your company is prepared before the government knocks on your door, or before you are slapped with a class action suit for misclassifying your contingent workforce.

The IRS and state agencies will be increasing their efforts to identify misclassified workers.

Why? Because it generates revenue for the government. Finding misclassified workers results in large tax assessments going back for several years with penalties and compounded interest added.

Take action now!

The perfect IC Compliance Storm is on the horizon. I recommend you prepare now by insuring you can withstand an audit or civil challenge of your independent, contingent workers. That means engage a professional who is an expert in IC compliance.