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Federal and State Audit Bootcamp Robert Kaelber October 12, 2017 PowerPoint Presentation
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Federal and State Audit Bootcamp Robert Kaelber October 12, 2017

Federal and State Audit Bootcamp Robert Kaelber October 12, 2017

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Federal and State Audit Bootcamp Robert Kaelber October 12, 2017

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Presentation Transcript

  1. Federal and State Audit Bootcamp Robert Kaelber October 12, 2017

  2. Agenda • Welcome and Introduction • Types of Audits • How Selected for Audit • Discuss Specific Audit Types • Federal • State • Other • Preparing for the Audit • During the Audit • Post Audit • Questions

  3. Types of Audits • Federal – Tax • General Audits • Payroll Specific • State – Tax • General • Withholding • Unemployment • Other Audits • Department of Labor • Worker’s Compensation • External • Internal

  4. Types of Audits • Field audit • Generally indicated through appointment to visit the company • Sometimes show up unannounced • Office/correspondence audit • Generally indicated by request for documents • Compliance check • This is not an audit – but could trigger further activities • Survey/request for information • E.g.; Form SS-8 (independent contractor), non-resident withholding questionnaire

  5. How Selected for Audit • Unlucky… • Returns include inconsistent information or matching/out of balance issues (e.g., W-2 vs 941, state withholding) • Federal or state examination initiative • A claim for refund or request for abatement requires further review • Complaint from the public alleging noncompliance (whistleblower) • Referral from another taxing agency • Unemployment claim (contractor or proper state) • Ratio of 1099’s to W-2’s, information reporting changes • Delinquent returns or payments

  6. Federal Tax Audits • General audits • All audits should now include a payroll tax aspect • Payroll tax audits • Primary issues include: fringe benefits, expense reimbursements, and worker classification • Other likely topics include: general compliance, 1099/W-9/backup withholding, equity compensation (timing and requirements), sick pay reporting, and FUTA taxes (reconciliation versus SUTA) • Personal responsibility for unpaid taxes may arise for responsible parties under the Trust Fund Recovery Penalty (TFRP) - IRC 6672(a)

  7. Worker Classification • Common audit issue for both Federal and State jurisdictions • Audits triggers include: General Audit, Whistleblower (SS-8 and state websites), Class Action, State UI filing • Degree of control and independence must be considered and all facts and circumstances taken into account • Federal 20 factor and 3-part test (Behavioral, Financial, and Relationship of the Parties) • State common law and “ABC” tests • Non-tax tests (e.g., DOL) • Relief Provisions • Section 530, Classification Settlement, and Voluntary Classification Settlement Program (VDA) • Significant penalty risk – both tax and legal

  8. Expenses • Allowances or reimbursements paid to employees for job-related expenses are not “wages” if paid under an accountable plan. Requires a policy (does not have to be written) that includes the following: • There is a business connection to the expenditure • There is adequate accounting by the recipient within a reasonable period of time • Excess reimbursements or advances are returned within a reasonable period of time • Failure to follow accountable plan rules results in wage designation and significant tax obligations/liabilities

  9. Fringe Benefits • In general, items of value from employer to employee are wages • Certain benefits may be taxable, non-taxable or tax deferred • Failure to follow statutory obligations can result in a non-taxable item being deemed taxable (generally FMV) • If an item is re-characterized, employer tax obligations arise • Cash and cash equivalents are wages

  10. Common Issues • Athletic skyboxes/cultural entertainment suites • Awards or bonuses • Club memberships (including airline and country clubs) • Company-owned or -leased aircraft and/or vehicles • Conventions and conferences • Corporate-owned life insurance • Discounts on property or service • Executive dining rooms • Estate planning and estate enhancement programs • Post-retirement fringes • Spousal or dependent travel • Use of recreation vehicles or boats

  11. Common Issues • Financial, legal and tax counseling • Free or subsidized lodging  • Golden parachute payments • Listed property (laptops, desktops for home, cell phones) • Loans (low-interest or interest-free) • Memberships in clubs and athletic facilities • Moving expense reimbursements • Outplacement services • Physical examinations and/or use of health/medical facilities • Qualified retirement planning • Stock and Equity

  12. State Tax Audits • General multi-tax audit (corporate, sales/use, property, etc.) • Departments communicate and any audit can trigger a payroll review • Withholding Tax • Typically compliance based (inclusions and exclusions) • Multistate withholding, trailing liabilities, work vs residence • State W-4 utilization • Supplemental wage withholding • Local tax issues (as applicable and typically separate from the state review) • Unemployment Tax • Compliance based • Proper state (4-part test, multiple work states or move) • SUTA Dumping • Payrolling

  13. Other Audits • US Department of Labor • Typically triggered by employee complaint • Wage/Hour, minimum wage, overtime, exempt vs non-exempt, worker classification • Worker’s compensation and/or state disability • External audit • CPA firm, investor, purchaser (due diligence) • Internal audit

  14. Preparing for the Audit • Before the Audit Notice • Mock audit or internal process review (limited or full-scope) • Review prior notices/correspondence/audits • Review transaction history • Confirmation of year-end reconciliation practices • Voluntary disclosures?

  15. During the Audit • Receipt of audit notice and IDR’s • Centralize response process and limit communications from other employees • Obtain qualified assistance • Discuss (negotiate) with taxing authority regarding document delivery • Samples, on-site vs off-site, timing of delivery, limitation of scope, limitation of years • Gather documents • NEVER provide anything you have not reviewed yourself • Determine gray areas • Conduct own payroll tests and reviews • Voluntary disclosures?

  16. Post Audit • Receipt of findings/assessment • There may be ways to minimize the assessment • Possible penalty or interest abatement • Negotiations with auditor • If you still don’t agree – APPEAL • Appeal rights should be included with assessment • Usually an administrative hearing • Representation allowed • Evidence and any documentation always helpful • Witnesses usually allowed • Update internal processes and follow best practices

  17. Questions?

  18. Speaker Contact Robert Kaelber Director, Employment Tax Human Capital Tax Services Ryan LLC robert.kaelber@ryan.com

  19. Thank You!