Donor Base

The IRS is launching a major investigation in all non-profit sectors, to determine if they have been complying with employment withholdings and tax law.  With research beginning in early 2010, thousands of for- and non-profit organizations have been selected across the country for review.  Organizations who have more than one independent contractor, improperly calculated or taxed fringe benefits, officer compensation issues, and payments disguised as employee reimbursements, will be targeted unquestionably.

The most wide-spread issue is worker classification.  Employers who provide a worker with a certain degree of instruction, a place to perform the work outlined, reimburse a worker, or pay him or her by the hour are all indicators that the worker is an employee.  Too often employers who wish to evade employment tax or are simply unaware of this codification, inaccurately classify their workers.  Workers who are hired for a specific service, paid by the job, and has control of how the service is performed, are characteristics of an independent contractor.  The government defines an independent contractor as such if “the payer has the right to control only the result of the work and not what will be done and how it will be done,” and whose wages are subject to self-employment tax.

If audited, and investigations uncover improperly recorded fringe benefits or discover compensation provided to “disqualified persons” like charity officers, organizations could be subject to penalties and interest fees.  For more information on fringe benefits and worker classification regulations, go to http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.