WELCOME TO “IRS HOT TOPICS”

1. WELCOME TO “IRS HOT TOPICS” Lynette Thibodaux New Orleans, LA

2. FSLG MISSION STATEMENT • Provide Government Entities top quality service by helping them understand and comply with their tax responsibilities and by applying the tax law with integrity and fairness to all.

3. The Compliance CheckWhat to Expect

4. The Initial Appointment • Receive an appointment letter or a phone call • Request for Information Returns Filed (941/1099/W-2/W-4) • Participation is voluntary • This is not an examination • Publication 3114

5. The Compliance Check • Purpose is to verify accurate information return reporting and filing • Provide an opportunity to educate • Initial interview to determine filing requirements • Inspect filed information returns for current year (941’s, 945’s, 1099’s, W-2’s, etc.)

6. No Adjustments to Tax • May result in a voluntary agreement to correct errors • May follow-up with another compliance check or an examination

7. The Compliance Check Report • Letter issued to close the compliance check • Letter will usually include recommendations for corrections • Disagree, IRS may consider an examination

8. Employment Tax ExaminationWhat to Expect

9. The Initial Appointment • Receive an appointment letter and/or a phone call • Request for books and records related to issues examined

10. The Examination • There is an initial interview • Review books and records for year(s) selected • Verify information on forms 941’s, 945’s, W-2’s, and/or W-4’s, etc.

11. The Adjustment to Tax • May propose additional tax or reduction of tax • Based on evidence and application of the law • Entity given opportunity to provide additional evidence • Issue examination report

12. The Examination Report • Examination report, reflecting adjustments with supporting documents, is issued • Agree • Disagree

13. If you Agree: • Sign an agreement and pay the tax (normally with no interest or penalty) • Expectation of future compliance

14. If you do not agree: • Specialist will explain your appeal rights (Publication 5) • A meeting will be offered with the manager • 30 day letter issued • Forward case to the Appeals Division

15. Appeals Process • Appeals officer hears position • Settlement may be offered • If accepted, case closed with agreement • No settlement accepted, proceed to court (District/Tax Court)

16. Issues discovered during Compliance ChecksandExaminations

17. Is my Worker an EMPLOYEE OR INDEPENDENT CONTRACTOR (IC)

18. EMPLOYEE DEFINED BY REG. 31.3121(d)-1 • The person for whom services are performed has the right to control and direct the individual performing the services as to the results and details. It is not necessary that the employeractually exercise the right; it is sufficient that the employer has the right.

19. Publication 1779 • This publication helps you make a determination about the status of a worker as either an independent contractor or an employee

20. Independent Contractor or Employee? • Review the primary factors involved in worker classification to ensure proper tax treatment: • 1. Behavioral Control - how, when and where to do the work and method used; training; evaluation system.

21. Independent Contractor or Employee? • 2. Financial Control - significant investment, expenses, opportunity for profit or loss • 3. Relationship of the Parties - employee benefits, written contracts, discharge or termination rights

22. INDICATIONS OF BEHAVIORAL CONTROL • INSTRUCTIONS • 1. When to do the work • 2. Where to do the work • 3. What tools and equipment to use • 4. What work to do • 5. Routines or patterns to use • (Note: Above are not all inclusive)

23. INDICATIONS OF FINANCIAL CONTROL • 1. Extent of reimbursed expenses • 2. Extent of worker’s investment in business entity • 3. Extent to which worker provides services to public • 4. How worker is paid • 5. Extent to which worker can realize aprofit or a loss

24. TYPE OF RELATIONSHIP • 1. Written contracts • 2. Is worker provided employee benefits (insurance, pension plan, etc.) • 3. Permanency-is worker engaged on a continuing relationship rather than for a specific project • 4. Are worker’s services a key aspect of regular business activity.

25. Employees... • Some Factors that may indicate workers are employees • Required to wear uniforms • Required to work certain hours • Do not make own appointments

26. Employees... • Provided training • Provided supplies and materials • Worker Stands no risk of loss

27. Independent Contractor • Factors that may indicate you are an Independent contractor • Makes own schedule • Buys own products • Has own phone number • Furnishes own supplies • Furnishes own equipment • Makes a profit or loss as a result of his own business decisions

28. Independent Contractor or Employee?? • After considering all factors, if you are still not sure whether a worker is an employee or independent contractor, complete Form SS-8 and send to the Internal Revenue Service for determination

29. Other Issues Retirement Contributions and Cafeteria Plan Benefits

30. Retirement Contributions • Employee contributions are income tax deferred (pre-tax) • Contributions are wages for “FICA” tax • 457 plan contributions are IT deferred only • “Ineligible” plans and excess contributions (403(b))

31. Cafeteria Plan Benefits • Benefits paid for under a qualified cafeteria plan are not subject to : 1.) Income tax 2.) FICA (OASDI or Medicare) • Dependent care benefits are reflected on the Form W-2

32. Fringe Benefits Employer Provided: Autos and Cell Phones • How does (your) employee account for personal use? 1.) Personal use is taxable 2.) Verified business use is not taxable 3.) Employee can reimburse employer for personal use

33. Fringe Benefits Reimbursement for Meals • Day Meals (taxable fringe benefit) Not excluded from income unless incurred while traveling away from home and on business overnight

34. Expense Reimbursements Accountable vs. Non-Accountable Expense Reimbursements

35. What is an Accountable Plan? • Employers can reimburse qualified business expenses that employees incur during the course of conducting business for the employer • Employee must follow certain rules in order for the reimbursement to be “non-taxable” to the employee

36. Accountable Plan Rules: • Employee must have paid or incurred deductible expenses while performing services for you, and • Employee must adequately account for expenses within a reasonable period of time, and • Amounts in excess must be returned

37. Non-accountable Plan if: • Not business related • Expenses are not substantiated (receipts) • Advances are not accounted for and/or amounts in excess are not returned to you within a reasonable period of time (120 days)

38. Personal Use Vehicles vs. Non-Personal Use Vehicles Personal Use Vehicles Non-Personal Use Vehicles: • Automobiles • Pick-up Trucks • Motorcycles • School Buses • Semi-Tractor/Trailer • Passenger Buses

39. Accountable Plans • For Personal Use Vehicles: • “Per Mile” Reimbursement is allowed • ( 55 cents beginning 1/1/09) OR • Actual Expenses incurred are reimbursed. • For Non-Personal Use Vehicles • Actual expenses incurred only! • Receipts for Gas/oil/tires/etc.

40. Form 944(Employer’s Annual Federal Tax Return) • Implemented January 2006 • Letters have been sent out to eligible Employers • Eligible if total annual liability is $1,000 or less • Return is due January 31 • No need to file quarterly 941 returns

41. RESOURCES • Call Your Local FSLG Specialist • FSLG Web Site: irs.gov/govts • Products/Publications: 15, 15A, 15B, 963, 1779

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43. QUESTIONS??