IRS Audit and a Workers Comp Audit – Comparison
Many similarities exist between an IRS audit and a WC audit. I was actually asked a very similar question at one of my last presentations. I had originally thought there were no similarities between the two.
Once I thought it over, I came up with the following similarities instead of differences:
- You are usually going to pay $. The goal of both is to find additional premiums/taxes to be charged to your company and collected. Very few audits of either type result in no change or even a refund.
- There is an air of intimidation. This is the #1 complaint I receive about insurance company auditors. However, if the employee is not a subcontractor, this rarely happens.
- You know more about what your company does than does either one of the two types of auditors. Taking a stand is sometimes a good idea if you are sure that you are right.
- They have the right to look through ALL the records, not just financials.
- You need to prepare heavily for both. Do you take the same amount of time and effort to prepare for a Workers Comp auditor as for an IRS audit?
- Both types of auditors are under time pressure situations. Almost all insurance company auditors have to complete a certain number of audits per week. Haste can make waste in these situations.
- You cannot ignore the audit notices from an insurance carrier or the IRS. They both have the right to just estimate the tax/premiums and then collect that estimated amount. The estimated amount is going to be much higher than what you would have paid under an audit.
- You can appeal either type of audit if it results in something that does not seem fair. However, you cannot just appeal to delay payment. We are sometimes asked to help a company come up with an appeals letter to delay paying premium. That is a bad idea. Both the IRS and insurance companies are usually good to deal with if you cannot pay the whole sum at once.
- Having concise records to give to the auditor can only help your audit. Do not just hand over the company books. Have it all on spreadsheets, etc. Helping each kind of auditor will only help your final result.
- ALWAYS be congenial to the auditors. They are just doing their jobs, just as you are doing yours.
- DO NOT GO AT EITHER TYPE OF AUDIT ALONE. To quote a great reference book* – It is not the answers to the questions the auditor asks that causes problems. It is the answers that you give that lead to an additional question. In other words, it is not knowing what to say; it is knowing what NOT to say. Just as you would hire an expert in a tax audit, make sure that someone represents you in a Workers Comp audit. Either way, there are large sums of $ on the line.
*Jeff Schnepper – How To Pay Zero Taxes
©J&L Risk Management Inc Copyright Notice