As an attempt to close the Tax Gap, the IRS can audit a business by worker classification (employee vs. independent contractor), fringe benefits (non-monetary pay for employees), executive compensation (both monetary and non-monetary pay for executives), and reimbursed expenses (i.e.; travel expenses). The best way to avoid this is to pay close attention to the IRS requirements for classification of employees and expenses. If this situation has already occurred, you could be responsible for fines and repayment of federal taxes that were not withheld properly from your employee’s earnings.
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