EMPLOYMENT TAX ISSUES DURING TAX-EXEMPT ORGANIZATION IRS AUDITS

The IRS has emphasized employment tax compliance during its tax-exempt audits for many years.  They believe that employment tax is a high risk area of noncompliance for non-profits.  Some of the main issues for IRS audit review include:

  • Expense reimbursements and accountable plan compliance,
  • Treatment of fringe benefits as taxable compensation,
  • Independent contractor vs. employer classification,
  • Form W-9 process and backup withholding compliance

Although tax-exempt organizations generally pay no business income tax, they are subject to Federal employment taxes, as long as they have employees.  Therefore, it is important that all non-profit organizations correctly report employment taxes for all of their employees.

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