IRS REMINDER TO EMPLOYERS: KEEP GOOD RECORDS

Posted 7/30/07

The IRS periodically signals which areas its auditors will be focusing on in the future by issuing "reminders" to taxpayers. While there is no guarantee the government will be concentrating on any one issue in future audits, it is a good idea to take notice when the IRS issues these reminders.

Recently, in the IRS e-News for Small Businesses, the Revenue Service warned employers that it is their responsibility to keep accurate, up-to-date business records. The IRS noted that employment tax records must be maintained for at least four years after the later of the due date of the tax for the return period to which the records relate or the date the tax is paid. These records should include the following information:

• Employer identification number (EIN);
• Amounts and dates of all wage, annuity, and pension payments;
• Amounts of tips reported;
• The fair market value of in-kind wages paid;
• Names, addresses, Social Security numbers, and occupations of employees and recipients;
• Employee copies of Forms W-2 that were returned as undeliverable;
• Dates of employment;
• Periods for which employees and recipients were paid while absent due to sickness or injury, and the amount and weekly rate of payments made to them by the employer or third-party payers;
• Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V);
• Dates and amounts of tax deposits;
• Copies of returns filed;
• Documentation for allocated tips; and
• Documentation for fringe benefits provided, including appropriate substantiation.

The penalties for noncompliance can be harsh. A willful failure to keep required records is a misdemeanor punishable by a fine of up to $25,000 ($100,000 for corporations) and/or imprisonment for up to one year.

We Can Help

Our firm stands ready to assist you in reviewing your current recordkeeping process to make sure it complies with the law and determining what, if any, changes you should make. Let us know if our professional staff can be of assistance to your business.

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To ensure compliance with requirements imposed by the U.S. Department of the Treasury and the IRS, we inform you that any federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed herein.