According to a February 2009 audit report released by the Treasury Inspector General for Tax Administration, the Internal Revenue’s Service’s (IRS) most recent estimate of the federal tax gap is $345 billion (based on tax year 2001 data). Notably, employment tax underreporting accounts for approximately $54 billion of the $345 billion tax gap.

Concerns about the expanding tax gap have focused increased attention on employment tax issues. Thus, the IRS is launching a National Research Program (NRP) study of employment taxes to assess the impact of worker classification and other employment tax issues on the tax gap. According to IRS’ chief of employment tax, John Tuzynski, the IRS will conduct random audits of approximately 6,000 employers over a three-year period, scheduled to begin in February 2010. It appears that these audits will be focused on the SB/SE division, which covers employers with under $10M in assets, but may well extend to larger employers under the LMSB division. IRS has reportedly trained 200 new agents in the field on these issues. Please see the attached memo for further information.

 

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