IRS & EDD Audits and Consequences

Written By: Martha De la chaussee

Payroll Tax Audit & Debt Expert

Payroll Tax Audits can be devastating to any business entity. These audits and tax debts can cause financial turmoil and havoc.

Why does the IRS and EDD Employment Development Department of California audit employers?

• Mismatch between reported payroll on Form 941 Employer’s Quarterly Federal Tax returns or EDD Form(s) Quarterly Contribution Return and Report of Wages and other documentation required to be submitted.

• Computer audit selection at random due to errors, items that cause the

Systems to select tax returns for payroll audits (red flags).

• Excessive use of Cash in a business and paying workers as independent contractors. (identifiable by claiming payments for contractors on tax returns of a business.)

• Whistleblowers who report to tax agencies that companies are paying workers under the table via cash or bartering systems. Or, not paying the required legal minimum wages.

• Misclassification of workers as independent contractors will most likely cause an audit to determine if in fact a company should be complying with payroll tax reporting and paying its workers as employees. This can create additional expenses in business liability insurance, worker’s compensation insurance and more.

• Opening and closing any type of business as a result of payroll tax debts may trigger a payroll tax audit. Or, in the worse case scenario land you in jail for criminal payroll tax evasion. Injunctions to stop you from ever operating a business as a result of non-compliance in payroll reporting and paying.

• Failing to file W-2 Wage & Income Statements and or Form 1099 for Independent Contractors when workers file their tax returns will trigger an audit. In addition, cause large penalties for failure to file required tax returns, reports or forms.

• Failure to keep business records to prove employment of workers is correctly identified as independent or employees. You need to be prepared as an employer or company for any type of audit potential according to the way you conduct these types of activities.

What happens when your company is selected for an audit?

You can be notified by mail that you and or your company has been selected for a payroll audit. Or, a tax auditor will appear at your business or last known address and inform you that you and or your company is under audit.

For sole proprietorships and sole corporate officer entities, there is a higher risk of your personal tax returns also being included for audit. The reason is that for sole proprietorships and single member limited liability companies and Corporations. Money can flow easily from individual to one of these types of entities.

In most cases in which money is being transferred, loaned, use of company bank accounts for personal use, draws, etc. The governmental agencies want to verify if you as a person has reported all your income from all sources of available funds.

Furthermore, it is required of these auditors to conduct cross compliance tax checks to confirm all income, expenses, deductions and other items reported or not reported on tax returns has been accounted for on each entities tax returns and full accounting of taxes due billed and assessed for payment.

If you need assistance with payroll or individual tax audits, contact your certified accountant or a payroll tax audit specialist who can represent you with tax audits. These professionals can include Tax Attorneys, Certified Public Accountants or Enrolled Agents.

Just make sure to interview a few of these professionals to verify if they have the knowledge and expertise to handle these types of tax issues. Not all tax professionals want to handle these types of cases.

Or, contact Martha De la chaussee, payroll tax audit & debt specialist at 323-344-2294. Luz Orozco E.A at 310-650-4664. We provide service nationwide.

Our website is at www.advocatetaxgroup.com or professional profiles on LinkedIn website using our individual names on search area.

#941 #payrolltaxaudit #payrolltaxes #unpaidtaxes #misclassification #workers #employmenttaxes #EDDpayrolltax #IRSpayrolltaxes #IRSaudit #independentcontractor