The Internal Revenue Service (IRS) says it’ll finally launch its National Research Program (NRP) in February — three months after it was originally scheduled to begin.

The NPR is an intense audit process, where examiners will go line-by-line through tax returns to gather info on the impact of employment tax noncompliance on the tax gap.

How many employers will be hit? Nearly 2,000 will be randomly selected for audits each of the next three years, according to the IRS.

Should your company be one of the unlucky ones chosen for an audit, here are some of the typical targets you’ll have to provide records for:

• fringe benefits
• company officers’ compensation
• expense reimbursements, and
• worker classification.

The move all companies will want to make: conducting a dependent eligibility audit. It’ll ensure everyone you’re paying for is still eligible for coverage.

The last thing any company can afford to do these days is foot the bill for folks who are no longer entitled to receive your health benefits.

The payoff is there for the taking: Companies that conduct dependent audits see an immediate 3%-10% drop in dependent care expenses, found Aon Consulting in its new Benefits and Talent Survey.

As previously reported, the Internal Revenue Service was gearing up for the audits to uncover unpaid business and payroll taxes. IRS is still planning the nationwide audit, but is pushing it back to February.

Here’s what auditors will be looking at:

• Three federal taxes collected, paid and/or remitted by employers — employee income taxes deducted by the employer, FICA and FUTA.
• Employment taxes related to four areas — worker classification, fringe benefits, reimbursed expenses and compensation of owner employees.

The audits have been triggered by an IRS study that shows a “tax gap” in the billions of dollars for unpaid business and payroll taxes.

The first round of employer audits for I-9 infractions apparently went so well that Immigration and Customers Enforcement has decided to extend the audit program and reveal the fines for violations.

ICE’s original plan called for 650 employer audits. The agency has completed about half of those and so far has categorized 16% of I-9s as “suspect and fined 61 employers a total of $2.3 million; 267 more employers are still scheduled for audit under the original program. Now, the agency is gearing up to audit 1,000 more employers, according to an agency announcement.

Responding to a Freedom of Information Act request by the American Immigration Lawyers Association, ICE disclosed its factors for assessing fines when it finds I-9 violations. In the past, ICE had calculated fines within the legal limits (up to $1,000 for the first offense and $2,500 for a knowing violation) based on five factors: business size, good faith, seriousness, employment of unauthorized aliens, and history of compliance.

The new ICE factors:

• Knowing hire or continuing to employ vs. paperwork violations
• First, second, or third offense
• Percentage of total reviewed I-9s that have violations
• Other factors such as  business size, good faith, seriousness, unauthorized aliens, and history

Some ICE examples of how employer fines would be set using the factors:

• Employer A with 25% of I-9s containing paperwork violations and no previously fined violations would be fined $440 per violation, which would be adjusted up 5% for being a large employer and down 10% for showing good faith with a good history, for a net of $418 per violation.
• Small Employer B with 5% of I-9s reflecting knowing employment of unauthorized workers (including “constructive knowledge”) might only be fined about $300 per violation.

That’s what happened to an Illinois man, who’s now in court as a result of his great gig.

Anthony Armatys accepted a job with New Jersey-based Avaya, Inc., before he changed his mind and declined. But the company’s payroll system never removed his name from the list of employees.

So Armatys stayed quiet and received his salary until Avaya’s auditors discovered the mistake — nearly four and a half years later, the Associated Press reports.

Armatys has plead guilty to theft. Prosecutors are recommending six years in jail plus restitution.

Though the company will probably get the money back, some more careful auditing could have done the trick.

The federal government’s cracking down on I-9 recordkeeping, with a big nationwide audit underway and more investigations likely to come soon.

Earlier this month, U.S. Immigration and Customs Enforcement (ICE) announced it was checking the I-9 records of more than 650 employers. The effort is part of the agency’s new plan to give employers greater responsibility in the fight against illegal immigration.

ICE described the audits as a “first step,” meaning more rounds of inspections are probably coming. Here’s what HR needs to know:

1. Who’s affected?

First off, who can be audited? The answer: anyone. ICE said the companies in the current investigation were chosen based on leads and other information obtained through investigations. Experts say certain industries, such as construction, manufacturing, hotels and restaurants, are being watched more closely than others.

2. What happens?

ICE starts the process by sending the employer a notice of inspection (NOI) requesting certain documents. In addition to I-9 forms, ICE could request EINs, payroll records and correspondences with the Social Security Administration regarding no-match letters.

Companies have three days to send the documents. They can ask for a time extension in some cases, but response to the NOI still must be quick.

Once a notice arrives, attorneys recommend gathering the documents and conducting a self-audit before submission to correct simple mistakes.

If ICE isn’t satisfied, it may conduct an interview with the employer — though the company has the right to refer the agency to an attorney. Once everything’s reviewed, the company could receive a “Notice of Intent to Fine,” as well as a list of undocumented workers that must be terminated and a list of “suspect documents,” requiring the employer to complete new I-9s.

3. How much can it cost?

In most cases, fines for bad documentation range from $110 to $1,100 per form. ICE can also pursue criminal charges if it thinks the company willfully hired illegal workers.

4. What can HR do now?

The best option for employers, of course, is ensure the documentation is spotless before an audit occurs. Experts recommend conducting an internal audit annually.

Both internal and ICE audits will go more smoothly if unneeded forms are discarded. (The law requires companies to keep I-9s for three years after the employee is hired or one year after termination, whichever is later.) The first step of an audit should to compile a complete list of which forms should still be on file.

To further prove that immigration reform is still on the front burner, Immigration and Customs Enforcement announced its plan to implement a nationwide audit of employer I-9s.

ICE announced that it’s drawing up  Notices of Inspection to review the I-9 records of 652 employers — names not released yet. In some instances, the notices will include subpoenas for records such as

• quarterly wage reports
• EINs
• business licenses
• correspondence from Social Security Administration regarding no-match letters, and
• payroll data.

Employers whose I-9-related records don’t pass muster with ICE will then receive Notices of Intent to Fine.  Also in the announcement, ICE officials said the audit is just a “first step,” so employers probably can expect more audits and inspections.

What happens if you’re contacted for an audit? Make sure you know:

• The name and contact information of company legal counsel. If the company’s legal counsel is not in-house, there should be written instructions for personnel to contact outside counsel immediately.
• Who, in HR or otherwise, will be the the company’s representative for the ICE investigation or audit. You’ll want all communication with ICE channeled through that person to avoid redundancy or contradictions in information.
• The names of company managers who should be informed of an ICE investigation or audit.

And keep in mind:

• An investigator may contact you and ask for an interview, but you have the right to refer the investigator to an attorney.
• An investigator has no right to files and records without a search warrant or subpoena.
• Once you’re informed of an intent to investigate, take special care to secure all related records. Destruction or loss of records after notification could be seen as an attempt to destroy evidence or sabotage the investigation.