IRS to Audit 6,000 Firms on Worker Misclassification

Strapped for cash, the Internal Revenue Service has announced plans to audit 6,000 businesses, both large and small, with a focus on worker misclassification, fringe benefits, reimbursed expenses, and executive compensation.

If the IRS discovers personnel listed as independent contractors who are in fact company employees, the results could be costly. The firm could owe large sums in past taxes and fringe benefits–retroactively applied.

The last time the IRS launched a worker classification audit in 1984, it estimated that 15 percent of all employers misclassified some 3.4 million workers. That’s a lot of loot in back taxes and health insurance/retirement payments.

With an estimated 10.3 million independent contractors in the U.S., that 15 percent today potentially represents 1.54 million misclassified workers. The IRS could hit a gold mine, but with the audit focusing on just 6,000 businesses over the next three years, it would take a lot of willful employee reclassifications to really ring up the IRS cash registers.

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