The IRS has announced that starting in February it will randomly select and do intensive audits on 6,000 employers. A key area of this effort is identifying misclassifications as independent contractors, persons who should be considered employees. Similar audits by state agencies have shown a 50% increase from the years 2001 to 2007 in the misclassification of workers. In addition to the independent contractor issue, the audit, which will stretch across all industries and company sizes, will examine compliance with payroll taxes, fringe benefits and executive compensation. If you are contacted to “participate,” you should use the same procedures you do when you undertake, for example, a sales tax audit. You should limit and making clear the chain of command, and maintain control over the audit by requesting additional time to respond in order to limit document production to those actually requested. Further, you may want to obtain outside advisers, such as your lawyers, accountants, early in the procedure.
