“Ask the Auditor” is a quarterly Secure Talent publication that helps readers understand 1099 misclassification risks, while offering strategies for risk reduction. The following excerpt is from this quarter’s Q&A session with David Sity, former IRS auditor and member of the Secure Talent Compliance Team.

1.    The question we are asked most frequently by clients, prospects, readers of our blog, audience members, etc… is “how real is the risk?” How many companies are audited on 1099 issues each year?

The IRS has announced plans to audit 2,000 companies per year for the next three years. 100 additional auditors were hired recently by the IRS to focus on collection of employment taxes. Previously, probably less than 1,000 companies per year were audited on 1099 issues. However, with the additional auditors on staff, the IRS will significantly increase the number of audits conducted over the next three years.

2.    Are there specific industries that are being targeted, or specific fact patterns that will attract IRS attention?

With regard to specific industries, historically the construction industry has been a big target. However, given that the IRS intends to double their audit rate, they can only do this by pursuing other industries which commonly rely on 1099 workers, such as the technology sector. It is also likely that medium and small size companies will become audit targets. There are a number of fact patterns that may trigger IRS attention. For example…

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