The Internal Revenue Service (IRS) may conduct a worker classification audit to determine if an employer properly classified their workers as employees or independent contractors. If a worker is reclassified from an independent contractor to an employee, the business will be responsible for unpaid payroll tax, penalties and interest.
States also conduct worker classification audits. In California, this is handled by the Employment Development Department (EDD). Business owners with employees on their payroll may find themselves in the middle of tax audits with the IRS and EDD because taxing authorities share data. This can be a major tax problem that business owners are not equipped to handle. Hiring a professional to represent them can relieve the owner of the stress of dealing with the auditors and allow them to focus on operating their business.