There’s a reason that business owners and individuals in Texas and across the country dread the prospect of an Internal Revenue Service audit. The power of the IRS is impressive –and possibly frightening, depending on your situation. A case in another state illustrates the fact that even cities are not immune to audits and IRS issues
After being flagged by the IRS because of the classification of its part-time employees, the city was audited beginning in February. Audits covered both 2012 and 2013. The IRS found that the city failed to report taxable benefits related to city employees. Some of those benefits included reimbursements for moving expenses, door prizes, gift cards, discounts for city employees and Civic Center members, uniform allowances and take-home vehicle policies.
The city finance director said that the IRS auditor came to the office to review the data about part-time employee classifications. Finding additional issues, the auditor then expanded the review, which resulted in the city owing $27,340 in back taxes.
The city will also have to comply with IRS regulations regarding the benefits. This means that employees in the city will see additional taxes taken out of their checks going forward. Another city official said that the IRS has been cracking down on fringe benefits recently, and that there is nothing the city can do to reduce the tax impact on its employees.
Whether you pay personal income taxes only, own a business or are part of a large organization such as a city, effective tax administration is essential to avoiding audits and future IRS woes. Understanding and following complex tax laws with regard to income, property and employees is a first step toward compliance.
Source: The Tennessean, “Gallatin pays $27,000 in back taxes after IRS audit” Josh Cross, Jul. 11, 2014