The IRS recently completed a program where it went through 6,000 employer audits and will use the information compiled from the research to educate and hone future audits. While the research is not yet complete, the IRS has identified the areas where they have seen the most issues. 

  • 1099s - The number of employers who aren't correctly dealing with Independent Contractors (ICs) for reporting is extensive. This means that employers are not filing the required 1099 tax form and/or are not withholding the necessary backup taxes when the IC does not provide a valid Tax ID number. An example would be paying an IC for work performed during the year, and not keeping records, so you don't realize that you've paid $600 for services. By the time you realize it, they've finished working for you and are gone.
  • Employee versus Independent Contractor - The research from the audits shows that a high level of workers classified by employers as ICs were classified as employees by the IRS. The IRS has guidelines for classifying workers and if, during an audit, they find that an IC meets the criteria for an employee, you, as the business owner, have a serious problem. Visit the IRS website to read the classification rules.
  • Fringe Benefits - The IRS found that many employers don't classify taxable fringe benefits correctly for their employees. An example would be trading a stall for an employee's horse in lieu of payment as salary. This is income and should be recorded on the employee's W-2 for the year. The second area of this is that the IRS has found that employers aren't complying correctly with code requirements and benefits that might be tax-free for their employees don't qualify.

The information the IRS gathers from this research should be completed this year and will, most likely, increase audits on firms that match their findings (businesses that were found not in compliance). As we know, equestrian businesses were one of those targeted groups.

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