Tell your A/P staff to be ready. Starting this November, the Service is planning the first of the 6,000 random employment tax audits that it will perform over the next three years.
According to the Kiplinger Tax Letter, that’s up from the 4,500 IRS originally had planned.
The main areas agents will be looking into are:
- Worker classification errors
- Exec pay and fringe benefit issues, and
- Whether expense reimbursement plans qualify as “accountable plans.”
IRS will be checking to if expense reimbursement plans qualify as “accountable plans” by ensuring the reimbursement meets the following three (3) criteria:
- There’s a “bona fide” business reason for the expense
- There’s adequate expense documentation, and
- If employees receive cash advances, unspent amounts are returned.
If the reimbursement plan doesn’t qualify as an accountable plan, all reimbursements to staffers should be taxed.
In addition to sterling documentation, doing an audit of your own in the above areas may help ensure A/P and Payroll are thoroughly prepared should the IRS come knocking.