Documents Requested by IRS for a Worker Classification Examination
Worker classification enforcement is a top priority for the IRS and state labor agencies. The IRS launched a new audit initiative to audit 6,000 businesses for worker classification. Your clients may be at risk no matter the size of their business! The IRS needs money and EVERYONE is fair game to the IRS and state labor agencies. Failure to plan can be extremely costly and in some cases it can cause a business to close its doors.
The typical Initial Information Document Request (IDR) will include the following:
1) Copies of the following returns/forms for the agent’s case file:
- Form 940 for prior years, exam year, and subsequent years.
- Form 941 for each quarter in prior years, exam year, and subsequent years.
- State unemployment tax returns for each quarter for prior years, exam year, and subsequent years.
- Form 1096 and Forms 1099 for prior years, exam year, and subsequent years.
- Forms W-2, W-2C, W-3, and W-3C for prior years, exam year, and subsequent years.
- Forms W-4 if any were completed by workers.
- Forms W-9 obtained from workers.
2) Payroll Journal for exam year (including work papers reconciling it to the employment tax returns).
3) Cash Disbursements Journal for exam year.
4) General Journal for exam year including any adjusting entries.
5) Trial Balance for exam year.
6) Copy of the prior years’ federal audit reports (if applicable).
7) Copies of the contracts between the company and its workers.
8) Additional documentation may be requested
Are you prepared when you get the call that your client is under investigation? What will you tell your client when they call with the bad news? Do you have the necessary tools to help them?
Knowledge is power and you should arm yourself with these tools to help keep your clients out of trouble.
- Distinguishing between the various classes of workers – Independent Contractors, W-2 Employees, Statutory, and Non-Statutory. What factors make up each category and is it as simple as it seems to make the correct determination?
- The 20 common-law factors – Learn how the common-law factors are used in audits and how you can use them to help your clients make effective and accurate decisions
- Statutory employees vs. non-statutory – How this misclassification has a major impact on workers costing them thousands of dollars in unnecessary taxes!
- What to do when a client is under audit or investigation for worker classification – Get Andrew’s tip sheet that will show you what the IRS and Labor agencies will use against your client
How to Classify Your Workers as Statutory Employees
Getting it Right the First Time: Independent Contractor vs. Employee Status