IRS nonprofit employment tax oversight to increase

According to Grant Thornton nonprofit tax experts, the IRS has intensified its focus on employment tax audits and overall compliance. IRS audits have been including specific employment tax specialists and their focus has expanded to include more and more items for review and assessment.

The IRS recently announced it will conduct intensive employment tax audits under its National Research Program, a study and data collection project that helps the IRS target non-compliant tax returns for audit. This is a multi-year study with random audits scheduled to begin this month.

The goal is to gather information in four categories: worker classification, fringe benefits, non-filers and officer compensation. Studying the impact of worker misclassification on the employment tax gap has become a high priority of the government.

Approximately 6,000 entities in all industries and of all sizes will be audited, with the nonprofit industry specifically targeted. The examinations will also be more intensive and conducted by more senior agents than in the past. They will analyze extensively the four employment tax areas listed above.

“In our experience, upon examination, each of the areas noted above, especially worker classification, can result in significant employment tax and penalty assessments,” Grant Thornton said in a recent Tax Alert newsletter.

“Your institution should review their employment tax reporting and withholding policies and procedures and verify it is in compliance and maintains appropriate documentation in this regard. Specifically the areas identified above should be reviewed;” the firm said.