Illinois accountants should be acutely aware that one of
the newest audit strategies of the increasingly aggressive Illinois Department
of Employment Security (IDES) is to give Illinois companies (who are currently
being audited) stern warnings of hefty fraud penalties that these companies may
face in the future!
HEFTY
FRAUD PENALTIES: The
standard routine that IDES auditors follow is to unleash the topic of future
60% fraud penalties at the “exit interview.”
The exit interview is the final communication that the IDES
auditor has with the company being audited. The IDES auditor solemnly
informs the company (or its
representative) that if the company persists in wrongly classifying these
workers as independent contractors (because the company now presumably
knows, due to the current IDES audit, what it must change in terms of
classifying workers as independent contractors ), then the company faces a
bleak future of possible massive fraud penalties (and possible personal
liability) for its alleged INTENTIONAL WRONGDOING!
AGGRESSIVE
FOLLOW-UP AUDITS: To
make matters even more dangerous, IDES audit supervisors have very recently started
assigning FOLLOW-UP AUDITS in great numbers! Hitting previously audited
companies with follow-up audits is a brand new and worrying audit
strategy by the IDES!
So, if you have a client who has been audited before by the
IDES (and whose independent contractors were reclassified to employee
status by the IDES auditor!), that client may well be selected now for a
FOLLOW-UP AUDIT!
Illinois companies who face a FOLLOW-UP AUDIT should brace
themselves for Determination and Assessments (audit tax bills) with 24%
interest – and then ANOTHER 60% fraud penalty on top of that – if they are
found to have intentionally MISCLASSIFIED their independent contractors.
Explain to your clients that 60% fraud penalties are the
devastating weapon that IDES auditors will unleash at these FOLLOW-UP AUDITS.
In view of the combination of 1) potential fraud penalties of 60% and 2) follow-up IDES audits of
Illinois companies who have had prior misclassification difficulties with IDES
auditors and hearing officers, it is very important to restructure and make
strategic changes to the Independent Contractor relationship.
Please contact me
so that we can evaluate your clients’ current independent contractor usage and
risks and also discuss ideas for damage control in the event the IDES contacts
your clients for follow up audits.
My office number is 630-377-1554. My cell number is
630-440-1945. My email address is najoerg@wesselssherman.com. I
look forward to hearing from you sometime soon.
FREE
COPY OF REGULATIONS PERTAINING TO SECTION 1402 FRAUD PENALTY:
Also, if any readers of this article want a copy of the Illinois Unemployment
Insurance Act as it relates to fraud penalties
(Section 1402) or wishes a free copy of the Regulations pertaining to the fraud
penalty law, please contact my legal assistant Tammy Nelson (tanelson@wesselssherman.com or
630-377-1554). I will continue to keep accountants updated as more becomes
known about the new and developing situation concerning fraud penalties and
IDES audits in general.
Now is the time to act to protect Illinois clients who use
independent contractors.
