Employment Tax Audit Defense | Tax Attorneys in Roseville, CA

What Is an Employment Tax Audit?

An employment tax audit is an examination by the IRS or the California Employment Development Department (EDD) of a business's payroll tax records. Auditors review whether the business has correctly classified workers, withheld the appropriate amounts of federal and state income tax, Social Security, and Medicare taxes, and timely deposited those amounts with the relevant agencies.

Employment tax audits can arise from random selection, discrepancies between information returns and tax filings, prior audit history, or specific industry targeting. Both the IRS and EDD conduct these audits routinely, and the stakes can be significant.

What Auditors Examine

During an employment tax audit, the IRS or EDD will typically review payroll records, Forms 941 (Employer's Quarterly Federal Tax Return), W-2s, 1099s, employment contracts, worker classification determinations, and payroll tax deposit records.

A common focus of employment tax audits is worker classification — whether workers have been properly classified as employees or independent contractors. Misclassification can result in substantial back taxes, penalties, and interest.

Personal Liability for Responsible Parties

One of the most serious aspects of employment tax issues is the IRS Trust Fund Recovery Penalty (TFRP) under Internal Revenue Code Section 6672. The TFRP allows the IRS to hold individuals — including owners, officers, and other responsible parties — personally liable for the employee portion of unpaid payroll taxes. This penalty can apply even after a business has closed or filed for bankruptcy.

California similarly allows the EDD to pursue responsible parties for unpaid payroll tax obligations. Understanding your exposure and responding strategically is critical.

How NewPoint Law Group Can Help

Our tax attorneys represent employers through all phases of employment tax audits — from the initial information document request (IDR) through appeals and, if necessary, litigation. We help clients organize and present records, respond to worker classification challenges, negotiate penalties, and, where appropriate, contest proposed assessments through the administrative appeal process.