Employment tax examinations to begin; 2000 tax payers to be selected each year

American Payroll Association offers audit tips as detailed IRS employment tax examinations about to begin: The IRS National Research Program (NRP) study on employment taxes is scheduled to begin by the end of March. The IRS will randomly select 2,000 taxpayers for comprehensive, random employment tax examinations each year for the next three years. The Spring 2010 edition of the SSA/IRS Reporter includes an article by the American Payroll Association (APA) that offers tips on how to prepare for an IRS audit.

Before the first meeting. The APA advises employers to establish an internal team before the IRS meeting. The team should consist of payroll, accounts payable, accounting, human resources, internal auditing, general counsel, and outside tax professionals. A person (point person) should be appointed by the internal team to manage the examination and supervise the input from employees. The point person should assemble and regulate the flow of information between the IRS and the employer. The point person should review all information before it is turned over to the IRS and be present during tours and interviews of employees. The APA believes that this type of setup will increase the likelihood that the information provided to the IRS is organized, complete, and focused. The APA cautions employers not to try to restrict or hide information.

Information requests. The IRS requests information that it would like to look at during tax examinations on Form 4564, Information Document Request. The requests should be given to the point person. The APA notes that employers are required to provide the IRS with all the information that the Service is legally allowed to request. However, employers are not required to provide any information that is not specifically requested by the IRS.

Problems with the IRS agent. The APA says that it is perfectly acceptable to have unresolved audit issues with the auditors. The APA recommends that an audit be stopped if an employer feels that an agent is not conducting himself/herself professionally. The matter should then be discussed with the auditor's supervisor.

Appeals. Unresolved tax examination issues that are not part of the closing agreement may be appealed to the IRS Appeals Office. Open audit issues that cannot be resolved with the Appeals Office may be litigated through a formal trial. The APA believes that this option should be chosen only as a last resort because of the time and expense involved with the litigation of tax disputes.