Yesterday, the IRS signed a Memorandum of Understanding with 29 States and their taxing agencies to share information with regards to employment tax examinations.
According to the IRS, here is what the MOU means:
1. The IRS and the participating state workforce agencies will exchange employment tax information for civil cases, which primarily are intended to evade or inappropriately reduce employment tax liabilities.
2. The IRS and the states may exchange information using either actual employment tax reports or a template compatible with federal and state information that the oversight team has developed.
3. The IRS and the states may participate in coordinated enforcement efforts. The MOU will allow the IRS and the state workforce agencies to share independently conducted examination results or work side by side on an examination.
4. The IRS and the states will strive to be consistent with their examination results, reducing the chances that states might classify a worker as an employee while the IRS classifies the worker as an independent contractor, or vice versa.
5. The IRS and the states will share employment tax training opportunities and materials.
6. The IRS and the states will also share outreach opportunities to the business community whenever practical.
The IRS already has many information sharing with other federal and state agencies (SSA, income tax with states, etc.).
This is a sign of the future - the IRS will have many external sources of information for tax compliance. The moral of the story is to do it right the first time. If you cannot, you need representation.
More on this to follow in the future.