Few employers relish receiving a letter from the Internal Revenue Service announcing an audit and giving a 30-day deadline for information to substantiate employment tax liabilities, unreimbursed employee expenses, benefit plan compliance, and executive compensation practices, among other tax issues. Audits do come, however, and it is wise for an employer to be prepared in advance.

Under a three-year program begun in February 2010, IRSs Employment Tax National Research Project plans 6,000 audits nationwide. Effective preparation in advance of an audit is an employers most effective defense against examination. Employers never know when an audit might come, and improvisation during an IRS examination can be disastrous.

This issue of Workforce Strategies provides guidance on preparing for a potential audit in four areas worker classification, taxable fringe benefits, business expenses, and executive compensation identified by IRS under the Employment National Research Project as key audit targets.