Monday, November 30, 2015

Illinois Accountants Need to React to Stern Warnings from the IDES Regarding Future Fraud Penalties for Independent Contractor Misclassification

December, 2015



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. 

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