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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