The IRS has recently published a new audit techniques guide designed to help auditors in their examinations of individuals who work as consultants and businesses that hire consultants. The IRS is encouraging audits of these people and entities.

In particular, the tax returns of individuals who work as consultants will be scrutinized to determine if unwarranted expenses are being deducted for business travel and to see if there is an attempt to separate personal and business travel expenses.

Tax returns of consultants will be examined closely for proper classification of meals expenses. If there is an expense for business travel, it follows that there should be a meal expense deduction as well. The limitation on the amount of meal expenses that can be deducted must be applied to meals purchased while the taxpayer is traveling, and the IRS will be checking to make sure this calculation is being made properly.

Businesses that hire consultants will be examined to determine if the consultants are actually employees who should be subject to tax withholding by their employers. Special notice will be taken of former employees who return to a place of business as consultants, and to consulting fees paid on a continuing basis to the same individual(s).

See a recent AccountingWEB article for more information on how to determine if a consultant is a free-lance contractor or an employee.