IRS National Research Project Includes Exempt Organizations

June 22, 2010

An IRS official recently announced that personnel from its Exempt Organizations (EO) Division will participate in the IRS Employment Tax National Research Project (NRP). The previously announced NRP will span three filing years, 2008 through 2010. It covers taxpayers under the jurisdiction of the IRS Large and Mid-Size Business (LMSB), Small Business/Self Employed (SBSE), and Tax-Exempt and Government Entities (TEGE) Divisions. See IRS Launches Employment Tax NRP (Forms 941).

The EO unit’s participation in the NRP is expected to result in the examination of 500 charities and other tax-exempt organizations. The NRP will focus on employment tax issues, with a specific emphasis on worker classification, officer compensation, fringe benefits, and employee expense reimbursement. The NRP will also examine issues related to nonfilers. According to the IRS, some of the examinations of exempt organizations have already begun.

The NRP is another example of the government’s redirected focus on employers’ compliance with their employment tax obligations. As noted previously, several legislators have also introduced legislation over the last year attempting to address issues with worker misclassification. See Proposed Federal Legislation Seeks to Remedy and Penalize Worker Misclassification and Proposed Legislation Likely to Classify More Workers as Employees.

In fact, the Senate Health, Education, Labor, and Pensions Committee recently held hearings regarding the proposed Employee Misclassification Protection Act, one such bill that received favorable testimony before the committee.

The foregoing developments further reflect that all employers, not just for-profit businesses, should ensure they are properly classifying their workers as employees or independent contractors, and that they are otherwise complying with their employment tax obligations.

McGuireWoods Nonprofit & Tax-Exempt Organizations 

Our Nonprofit and Tax-Exempt Organizations Group provides advice and guidance that enables charities and other nonprofits to operate successfully in the increasingly complicated, regulated, and competitive environment facing nonprofits today.

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