The IRS just announced it’s rolling out its first National Research Program (NRP) in about 15 years this November. The agency says the reason for the program is to:

• improve agency compliance efforts, and
• better use existing resources.

For employers, this means a much greater chance of being audited over the next three years, because up to 2,000 companies could end up in the NRP over each of the next three years, IRS’s Anita Bartels told attendees of the American Payroll Association’s Annual Congress.

The selection process, which is already underway, is based on a statistical sample.

Rest assured, just because your firm gets audited doesn’t mean it did something wrong (e.g., file an incorrect return). Still, it can’t hurt to review now the four areas IRS says its examinations will focus on: worker classification, fringe benefits, nonfilers and officers’/directors’ compensation (especially S corporations).

The Internal Revenue Service is calling it “the National Research Program on employment tax compliance.” What it amounts to is a far-reaching audit program to dig up business-tax revenues.

Here are the two main areas that are going under the IRS spotlight:

• Improper worker classification. The agency is mainly concerned with workers classified as independent contractors because the classification affects the revenue state governments receive to pay for unemployment benefits.
• So-called nonconforming benefits. Those are benefits that could be considered wages subject to employment taxes. The typical targets: personal use of company vehicles, employee discounts, employer-provided housing and meals, accident and health benefits, educational assistance and stock-based compensation. Reimbursed expenses, in order to be tax-free and deductible, must generally be reasonable, have a business connection, include reasonable accounting for the expenses, and all excess reimbursement should be repaid within a reasonable time.

IRS has announced that it will be looking at mainly tax records for 2007 and 2008, but that doesn’t mean other years are exempt from examination. The announcement about the program was first made by the agency’s Anita Bartels at the Annual Congress of the American Payroll Association.