IRS Audit TASPA Conference December 2010 Kelly K. Crook, Ph.D. - - PowerPoint PPT Presentation

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Preparing for (and Surviving) an IRS Audit TASPA Conference December 2010 Kelly K. Crook, Ph.D. Assistant Superintendent for Finance Del Valle ISD DISCLOSURE The information and suggestions presented in this presentation are based on an

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Preparing for (and Surviving) an IRS Audit

TASPA Conference December 2010 Kelly K. Crook, Ph.D. Assistant Superintendent for Finance Del Valle ISD

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DISCLOSURE

 The information and suggestions presented

in this presentation are based on an audit conducted in Del Valle ISD in November 2008 and subsequent follow-up with IRS

specialists. The opinions expressed are

those of the presenter and have not been sanctioned by the Internal Revenue Service.

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“Dear Taxpayer…” - Initial Contact

 Who is chosen and why?  Possible tip-offs: W2/1099, Medicare tax

contributions, Retirement contributions

 Length of Audit

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Requested Information

 Information requested is specific to one or

more years – usually 2 to 5 years previous.

 On-site requests usually involve current year  See A-1 for sample list of requested items

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What Are They Looking For??!!

Unpaid taxes. Plain and simple.

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Major Areas of Concern

 Medicare contributions for employees  Updated W-9s on file for all active vendors  Fringe benefits for employees  Independent Contractor vs. Employee

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Medicare Contributions

 All employees hired after 3-31-86 must pay

1.45% Medicare tax contributions

 Employees hired in your district prior to 3-31-

86 with no break in service do not pay Medicare tax contributions

 Check on this – very easy for people to slip

through…

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Updated W-9s for All Active Vendors

 Must have current version (updated October

2007) with corporate tax classification (see A-2)

 Develop coding system to separate vendors

from employees, parents, students

 Scan W-9s into purchasing software, if

possible

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Fringe Benefits for Employees

 Any property, service, or cash (other than

salary) provided by employer

 All taxable unless excluded specifically by

law (see A-3)

 Must be included in employee’s wages and

reported on W-2 form (NEVER on 1099- MISC form)

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Examples of Fringe Benefits

 Uniforms & Clothing  Cleaning service for Uniforms & Clothing  District cell phone or cell phone allowance  Awards (Teacher of the Year check, etc.)  Bonuses (D.A.T.E. grant, etc.)  District vehicles or travel allowances  Housing or housing allowances

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District Issued Vehicles/Cell Phones

 Personal use is taxable  Verified business use is not taxable  Can use cents-per-mile, commuting rule

($1.50 per way), lease valuation rule (annual)

 Cell phone billing statements – very difficult

under current billing structure

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Kelly’s Common Sense Fairness Rule

If an employee receives something that everyone else has to pay for themselves – they need to at least pay taxes on it!

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Independent Contractor vs. Employee

 Right to direct and control  Substantive Consistency & Reasonable

Basis

 Twenty Common Law Factors test  Control of payment of wages (Business or

Individual)

 Who is ensuring that taxes are being paid?!

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Right to Direct and Control

 Behavioral: If employer provides instructions

n how to do job, what hours/days to work,
etc. then worker most likely employee

 Financial: If employer provides an office,

supplies, computer, email address, etc. then worker most likely an employee

 Relationship: If employer provides benefits

(life, health, dental, etc.) then worker most likely an employee

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Substantive Consistency & Reasonable Basis Tests

 Consistency: Treating all workers in similar

positions the same

 Reasonable Basis: Relying on prior audit

safe haven, judicial precedent safe haven, industry practice safe haven

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Twenty Common Law Factors Test

 Designed to help you evaluate how work is

performed (see A-4)

 Form SS-8: Be careful about submitting for

review (see A-5)

 Remember – employees can submit as well!

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Control & Payment of Wages Business or Individual

What do you do when you’re in a bind?

 Contract with businesses, not individuals

(ensures the payment of taxes)

 Must pay contractor under tax ID number –

not social security number

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Where are the Specific Rules?

There aren’t any! Your audit findings only apply to you!

 Private Letter Ruling: Method of appeal, but

“This document may not be used or cited as

precedent. Section 6110(j)(3) of the Internal

Revenue Code”

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Where are the Specific Rules?

It is completely up to the auditor, so… Be cooperative, respectful, prompt with information, and pick your battles…

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Resources

 www.irs.gov

Publication 15 – Circular E, Employer’s Tax Guide Publication 15-A – Employer’s Supplemental Tax Guide Publication 15-B – Employer’s Tax Guide to Fringe Benefits

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