IRS Audit Process Overview for Tax Compliance Checks
Experience a detailed account of an IRS audit process involving tax compliance checks for North Star Schools and Malta Schools. Learn about the required forms, meetings with Mr. Gilbert, and the thorough review conducted to ensure compliance. Understand the significance of responding promptly and providing requested documentation for a smooth audit process.
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Presentation Transcript
IRS Audit Kathy Preeshl, North Star Schools Jane Knudsen, Malta Schools
Phone/Mail Audit North Star Contacted me that they were going to do a tax compliance check for year 2012 and 2013. Received a letter and stated they wanted all of this information mailed to them. I was hesitant as I did not feel comfortable as the address to send to was Wyoming. Looked up IRS Offices in Montana and contacted Mr. Gilbert and visited with him. Information they requested to be sent. Had to make copies of all of the following:
Form 941 Form 945 (did not have to send as not applicable for North Star) Form W-2 Form W-3 Form W-4 Form W-9 Form 1099 Form 1096
After he reviewed all of the information he set up an appointment (we did a phone appointment) to review everything I sent him. Compliance check over the phone took around 1 hours and Mr. Gilbert informed me that everything I sent in was examined or inspected, and he was just following up with questions. Did not find anything other than a name on a 1099 did not match, SS number did match so had to have individual fill out new W-9.
Mr. Gilbert spent a lot of time on the 1099s and also sent me lots of information on 1099s. Glad I had everything he asked for or could answer his questions. I also asked a lot of questions about how I was handling 1099s.
But Wait Mr. Gilbert informed me that we still could have an employment tax examination once everything was reviewed by the IRS. Would be contacted in 30 days. One took about a week and they were not going to do a employment tax examination since everything checked out.
On Site Audit - Malta Bruce Gilbert notified me that he planned to do an onsite audit for tax years 2012 and 2013. He faxed a letter and the information that would be reviewed. I called Denise and Kathy to find out what they knew about this guy and if it was a hoax. All information was to be ready when he arrived on May 18, 2015.
941s for 2012, 2013, and 2014. 945 not applicable for Malta. W-2s for 2012, 2013, and 2014. 1099s for 2012, 2013, and 2014. W-9s. Internal control procedures for preparing and transmitting W-2s and 1099s. Account listing for accounting system. Accounts payable records with totals for 2013 with identifiable vendor information.
Calendar yearend payroll records with breakdown of payroll deductions. Employment contracts for administrators, classifieds and certifieds for 2013/2014. Bargaining agreements. Report summarizing all payments to employees thru accounts payable. Any notices/correspondence with IRS or Social Security Administration for 2013/2014. Plan documents for 403Bs, flexible spending, HRAs/HSAs or other employee benefit plans.
Annual financial reports for 2013/2014. Employee benefit packages/policies. Employee manuals. Information about individuals who received both a 1099 and a W-2 in the same year. Employee settlements and lawsuits.
Written policies for: Accountable/non accountable plans Automobile allowances and/or reimbursements. Travel allowances and/or reimbursements. Entertainment allowances and/or reimbursements. Employer provided automobiles. Meal allowances and/or reimbursements. Educational assistance. Cell phones provided to employees. Employer provided housing Moving expense reimbursements.
After reviewing records for 4 days, Mr. Gilbert went over his findings with me. We had two major issues 1099s and taxable benefits on $350 times 2. 1099 penalties failure to file ($100) and failure to provide ($100). These could have been avoided with W-9s that indicated if a 1099 should have been issued. Of the initial list of 25 plus, I was able to get W-9s on all but 1. That helped eliminate those that are exempt and those that need a 1099. Mr. Gilbert gave me 10 names and allowed me time to reduce the initial penalties of $5,531.53. Which is the 28% backup withholding tax on $19,755.46 of 1099s that should have been filed.
Then using IRS form 4669 (statement of payments received) I sent these out to the individuals to sign off that they reported the money on their taxes. Out of 10, I received all but 2 back 1 refused to provide on the grounds he may now be audited. The other refused to answer my phone calls/letters. Total fine was $491.93 for backup withholding and $1400 for failure to provide/failure to file. $1,891.93. However! In September, I received another bill for an additional $69.75 due to an error in his calculation.
Taxable fringe benefits Hello! Important! Our principals/super receive a $350 membership fee. And it is paid to them thru claims. This should have been run thru payroll!! This oversight cost the district $282.12 payroll taxes plus interest and penalties. It also meant that I needed to amend their W-2s and that meant amending tax returns/interest and penalties for them. After Mr. Gilbert left, he called and requested various additional payroll information. However by the beginning of August, he was done. I cut a check for $2,243.80 and jumped for joy. The final audit was received in late September.
Dont Panic! If you have everything in order you should have no problems. Don t be afraid to ask questions, Mr. Gilbert was very professional and very easy to work with.
What I Do Now I send out letter to everyone that does work in the school, even if I know they are a corporation, I request a W-9. Sample of what my letter includes: Date:/To:/From:/RE: W-9 Due to an audit of the North Star School District, North Star School District will now be required to have the following information on file for all individuals and businesses performing services for North Star School District. Please fill out the enclosed W-9 Form completely and return to: North Star School District 99M, Attn: Kathy Preeshl, PO Box 129, Rudyard, MT 59540.
List of W-9s Received Keep Track with Excel File With the help of my AD he talked to the local pools and had everyone in the pool fill out W- 9s and then he also sent them out to all of the schools in our district. Didn t expect him to do this but was great help.
W-9 Received Do Not Need to Issue 1099's Limited Liability Company (C,S,P) Individual/Sole Propietor or Single-Member LLC Name of Company C Corporation S Corporation Partnership Trust/Estate Other Tutt Construction X Schine Inc X CHS Inc. X X - C Actuaries Northwest Diesel Doctor X Glassworks X Johnson Controls X The Chemnet Consortium X Triangle Communications X Schoolhouse IT Inc X Northern Hardwood X Eataco Inc X Foxie Lady Computers X Pimley Farms/Pimley Electric X McGraw Hill X Kapp's Co. X McNair Furniture X MTSBA X Nault Plumbing X Dusty's Sprinklers X Diagnotic Pest Solutions X Dick Nault Plumbing X 3 Point Architects, Inc. X Glassworks X Loch Electric X-S
W-9 Received Need to Issue 1099 if over $600.00 Limited Liability Company (C,S,P) Individual/Sole Propietor or Single- Member LLC Name of Company C Corporation S Corporation Partnership Trust/Estate Other Montana Interquest Canines LLC X - P Bear Paw Paint X - P Blue Sky Heating X Horinek Buses X Don's Spetic Service X Johnny Polk-Fine Line Painting X Fire Suppression Systems X-P Integratred Imaging Systems X Jack Sterling X Kenneth Stuker X South Bus Route-Kapperud LLC Tammy Duncan X Toner's Tire-Rama South Bus X Wipfli LLP X Shell Energy X Textbook Warehouse X-P Greg Daily-Piano Tuner X Quality Landscaping X Denise Strissel-First Aid X Lynn Jurenka-First Aid X S & M Construction X
Referees W-9 Received Need to Issue 1099 if over $600.00 Individual/Sole Propietor or Single-Member LLC Limited Liability Company (C,S,P) Name of Company C Corporation S Corporation Partnership Trust/Estate Other Terry Brockie X Justin Simenson X Bonnie Weber X Bart Hawkins X Justin Morse X Todd Amsbaugh X Donald Evans X Robert Watson X Curtis Horn X Gary Mengershauser X Larry Morhardt X Lyle Kimmet X Karston Donoven X Chase Rambo X Tyler Tharp X Allen LaMere X Michael Haney X Anthony Vigliotti X Robert Spicher X Patrick Foster X Partick Wirtzberger X Tammer Veis X Brian Campbell X Clinton Evans X Shawn Rettig X Kimberly Anthony X Terry Kimmet X Daryl Vandernacre X Wes Brummer X Doug Richman X Jody Hansen X Patty Murnion X
Tips To Remember! Get W-9s!!! 1099s are filed on the full amount not on labor versus material. When in doubt issue a 1099! Protect yourself! Review your contracts and/or other payments to employees. Meal reimbursements.
