Whether you are employed or a freelancer, ensure your firm’s plan is up to date, whether you are a freelancer or employed. An increase in IRS audits of retirement plans will direct attention on types of plans and issues that experience has shown are likely to result in non-compliance.

The targets:

SIMPLE plans. The 100-employee limitation is the largest issue for SIMPLE plans. Firms that can have a SIMPLE plan are those who have no more than 100 employees with $5,000 or more in compensation during the previous year.

SEP plans that consist of salary decrease. To be considered eligible for SEPs, employers should verify that the plan was timely implemented and that all employees who are at least 21 years of age and have carried out services in three of the five previous years.

Avoid criminal charges booking “loans.” When a small business categorizes payments to the owner or for the owner’s advantage as loans instead of salaries, dividends or bonuses, the government is opt to turn a tax audit into a criminal investigation. The government is likely to investigate the tax preparer or bookkeeper who neglected to perform due diligence or otherwise assisted the business owner in the fraud, even if the assistance was passive, according to a U.S. Justice Department official speaking at a recent conference. Even if the individual isn’t charged with a crime, they are likely to have to undergo an investigation of their activities. Bookkeepers and tax preparers should make sure that transactions catalogued as loans are real and documented. “Real” is proven by documentation of the loan, accrual of interest charged and of payments of interest and principal. The terms of the loan agreement must be complied with. You can’t monitor the activities of those you work for, however, you can ask for clarification and document your conversation. Business owner agree to a plea deal with the government so the prosecutor’s main target becomes the tax preparer or bookkeeper. The responsibility will be on the tax preparer.

How to self-correct: Use the IRS Employee Plans Compliance Resolution System (EPCRS). The IRS expanded the self-correction options available in Rev. Proc. 2019-19, 2019-19 IRB 1086. This doesn’t increase the chance of an employer being audited.

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