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Old 12-04-2012, 03:21 PM
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Payroll Audit

I previously worked in a company ( with 3 employees) as an independent contractor ( Bookkeeper). In the year end I sent out 1099 Misc to 3 independent contractors ( including me, our janitor and our Landlord) , but did not file the form 1096 with IRS. I did not know we should file one. Our company is to be audited this Thursday for 2010 payroll . We have all other information readily available for the audit, and also the copy for 1099 except for the 1096 . What would the consequences be?

Please help!!



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Old 12-04-2012, 09:28 PM
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“In the year end I sent out 1099 Misc to 3 independent contractors ( including me, our janitor and our Landlord) , but did not file the form 1096 with IRS. I did not know we should file one. Our company is to be audited this Thursday for 2010 payroll .”----> The IRS Form Form 1096 is a compilation/summary return, which shows the totals from information returns and must be submitted to the IRS along with these returns, such as the 1099-MISC form.You will need to submit a separate 1096 for every type of information return you have given to a recipient, even if you only prepared one of each kind. For example, if you prepared and submitted two 1099-MISC forms and one 1099-R form (for retirement payments), you must submit a 1096 summarizing the 1099-MISC forms and another 1096 summarizing the 1099-R form.You MUST submit the RED Scannable Form to the IRS. Don't download and print a 1096 from the web and submit it; you could be subject to a $50 fine for submitting a 1096 form that is not scannable. A 1096 requires the filing company to identify their name, the total amount of payments on all 1099 forms -- including 1099-MISC for contract works and any withheld taxes.

“ We have all other information readily available for the audit, and also the copy for 1099 except for the 1096 . What would the consequences be?”----> If you want to be successful in a tax audit, it's necessary to have the best representation possible during the process. Most people think of audits as complicated and overwhelming. But for many it is not as difficult as seems. When taxpayers are contacted it is often to request additional information to support income and write-offs that they claim on their income tax return. As long as the source documents are available you may not need outside help. ‘The typical [audit] begins with a letter from the IRS advising the business that it is being audited by the IRS. The letter will provide the IRS tax form and the period of the audit. The letter asks the taxpayer to call the IRS to make an appointment for the audit. When the taxpayer or the tax representative calls to get more details, the auditor will ask if the business is using any electronic accounting software. If the answer is “QuickBooks,” then the first information document request includes a request of a backup of the QuickBooks data file, and the administrator user name and password to open the file. ( Note:the IRS implements similar processes for small businesses that use electronic accounting software other than QuickBooks…).If the QuickBooks data file is provided to the IRS, it is important that it is trimmed to only provide information for the period of the audit. That is generally a calendar year, but for the IRS, the date range should cover 14 months, providing the IRS with the ability to test cutoffs at the year ends.TP can choose the handling the audit by himself, has a representative go with him, and has a representative go in his place. If TP choose to handle the audit himself or to have a representative accompany him, he increases the risk that the agent/auditor will ask questions that he would prefer not to have to answer. There are four kinds of IRS audits.Correspondence Audit is a letter from the IRS Service Center requesting that you send in copies of your canceled checks and/or receipts in order to verify certain deductions on the return. This type of audit is reserved for small, simple tax returns and most likely your business will not be audited in this manner.The notice of an office audit also arrives by mail. The letter identifies specific items on the return that are in question and requests that you or your representative to bring certain documents to the local IRS office for the auditor's examination. If your business is a small, sole proprietorship with sales under $500K you may be subjected to this type of audit.

With a Field audit, the IRS agent, personally, will call the owner/president/general partner and notify him/her that the return has been selected for audit. This type of audit is called "field" audit because the agent will want to conduct the audit at your place of business rather than the IRS office. Most incorporation businesses and partnerships are audited in this manner. During the initial telephone contact, the agent will be asking for the following: To interview the principals;To arrange a date(s) to be at your place of business; To determine where the records are located;To provide a list of records that are to be made available;It is crucial that during a field audit, you have representation. The IRS agent is instructed to interview you and go to your business so that he/she can ask detailed questions about business operations and see the business facility first hand. Your representative will attempt to buffer you from this type of questioning and probing. More than likely, your representative will attempt to have the audit conduction in his/her office rather than your business.



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Old 12-04-2012, 09:52 PM
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Thanks for your reply.
My question is the 1096 form is for 2010, we have Peachtree software and it would not allow us to printout the data for 2010 . Can it be handwritten?



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Old 12-04-2012, 10:43 PM
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“My question is the 1096 form is for 2010, we have Peachtree software and it would not allow us to printout the data for 2010 . Can it be handwritten?”---->> I guess handwritten should not be recommended. You can contact a IRS agent for more accurate info on this. IRS agents are starting to request client backup files from small business accounting software such as QuickBooks and Peachtree.I guess the auditor sends you a list of what he or she wants. Since you are being audited, it’s for a specific year 2012 so yu need to give them what they want – the data for the year in question, nothing more – nothing less. So let’s say that you are being audited for 2010. The chances are very good that your current PT company file contains detailed information about your business since you started it before 2010. You’ll want to only provide the information that relates to 2010. The IRS now has a new tactic for auditing small businesses. They now have Quickbooks and PT software and are requesting electronic versions of accounting records for their audits. They have released further details to remind that it is mandatory that you provide your accounting records in an electronic format if they are requested. From an IRS audit prospective, the door will be open to analyze data much further to determine where they may be able to effectively find compliance problems. If they have the electronic accounting file, they can review the audit trail to see if anything was changed after the transaction was originally entered. They can tell how often you update your records. They can also see all deleted transactions. However, the examiner may still need to request other documents when such records are necessary to properly test a return item or issue. According to the IRS, it has trained revenue agents and has given them copies of the software to become proficient in using them and other programs in the future. IRS auditors prefer reviewing and assessing the original books of entry—not translated or interpreted versions—to evaluate audit trails and the reliability of records.



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Old 12-05-2012, 10:38 AM
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Thanks for the help!!



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