IRS to Begin Employment Tax Examinations (Forms 941)

February 4, 2010

Later this month or in early March, the IRS will begin examining Forms 941 filed for the 2008 calendar year. As explained in “IRS Takes Aim at Employment Tax Returns (Forms 941),” the examinations are part of a study by the National Research Program (NRP) within the IRS Office of Research, Analysis & Statistics to measure reporting and payment compliance for employment taxes.

NRP is working to close an employment tax gap estimated at $15 billion. These examinations will be detailed, and will provide the IRS with information about how taxpayers are treating employment-related tax matters. According to IRS officials, the goal of the NRP study and examinations is to compile trending information in five categories: worker classification, fringe benefits, executive compensation, backup withholding, and Forms 1099. But any employment tax issue that presents itself will be examined. IRS agents are being instructed to conduct worker classification determinations even in situations where it appears that all workers are employees.

The IRS has selected the 1,500 – 2,000 taxpayers it is going to examine. Taxpayers will know they have been selected for one of these audits if they receive a letter stating they are subject to a “compliance research examination,” or if they receive a letter that states “3850-B.”

As the alert “Failure to Pay Over Payroll Taxes Could Land You in Jail – The Sequel” illustrates, the IRS and the courts are taking employment tax matters very seriously.