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What Is Difference Between IRS Audit and Workers Comp Audit


IRS Audit and a Workers Comp Audit – Comparison

Many similarities exist between an IRS  audit and a WC audit. I was asked a very similar question at one of my last presentations. I had originally thought there were no similarities between the two.

Vector graphic of IRS Audit Plan

Once I thought it over, I came up with the following similarities instead of differences:

  1. 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.
  2. There is an air of intimidation. This is the #1 complaint I received about insurance company auditors. However, if the employee is not a subcontractor, this rarely happens.
  3. 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.
  4. They have the right to look through ALL the records, not just financials.
  5. 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?

  6. 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.
  7. 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.
  8. You can appeal to 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 premiums. 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.

    Picture Woman Using Laptop and Calculator IRS Audit Comparison
  9. 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.
  10. ALWAYS be congenial to the auditors. They are just doing their jobs, just as you are doing yours.
  11. 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 cause 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

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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