The IRS recently announced that it will launch a major audit initiative targeting underpayment of employment

ƒƒ Client Alert December 8, 2009IRS TO LAUNCH SWEEP OF EMPLOYERS’ PAYROLL TAX PRACTICES The IRS recently announced that it will launch a major audit initiative targeting underpayment of employment taxes by U.S. companies. The project is scheduled to begin in February 2010 and is the agency’s first comprehensive review of employers’ payroll tax obligations in 25 years. As part of the Employment Tax National Research Project (NRP), the agency will randomly select 2,000 taxpayers each year for the next three years. Those employers will be subjected to comprehensive audits of their payroll tax practices. Then, the agency will use the information it obtained from those 6,000 audits to design a ramped-up enforcement strategy — a strategy that will enable it to identify and audit future employment tax returns deemed to have the greatest compliance risk. WHY IS THE IRS DOING THIS? In a press release announcing the project, the IRS stated that the project is necessary because “[b]usiness practices regarding employment tax issues may have changed significantly since the last IRS employment tax study in the 1980s.” The agency hopes that the data it collects will allow it “to gauge more accurately the extent to which businesses properly comply with employment tax law and related reporting requirements.” Although the agency has taken pains to characterize the project as a “research study,” the project’s ultimate goal is revenue collection. Because ...