Key Issues That Illinois Accountants Should Be Aware Of When Handling IDES Audits

Illinois Department of Employment Security (IDES) audits have changed radically in recent years. Illinois accountants should be aware of the following major changes that have occurred especially with regard to Illinois companies that use independent contractors.

1. The IDES is emphasizing that certain business owners may be personally liable for any assessments that may occur as a result of an IDES audit.
2. IDES auditors lecture the companies they audit that the IDES will not hesitate to assess a 60% fraud charge onto a company that intentionally and willfully misclassifies independent contractors.In the past, the majority of IDES audits have been triggered by misclassified independent contractors who filed for unemployment insurance benefits upon being separated from the company. Random audits were also a big reason for IDES audits. Most recently, IDES audits are triggered because the company has been previously audited by the IDES. These kinds of audits are called FOLLOW-UP AUDITS. I am finding that more and more clients are being hit with these follow-up audits.
3. Illinois companies that are hit with follow-up audits should be particularly sensitive to the fact that they may also be hit with a 60% fraud assessment. If a company was previously audited by the IDES and the company ignored the deficiencies that were found as a result of that prior IDES audit, the IDES can then prove fraud.
4. Accountants who are assisting Illinois trucking companies who use independent contractor owner-operators need to be well versed in the special law and regulations that apply to the trucking industry.

Contact Attorney Nancy E. Joerg (Managing Shareholder of the St. Charles Illinois office of Wessels Sherman) who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types.  Nancy Joerg can be reached at 630-377-1554 or email her at najoerg@wesselssherman.com

New Approach to IDES Audits!!!

The Illinois Department of Employment Security (IDES) is now doing many more "follow-up audits"!!!  This means that your clients who have been audited before by the IDES have a much higher likelihood of being audited again in the near future. Also keep in mind that the IDES is using 60% fraud penalties for Illinois companies who have failed to restructure their operations after being audited by the IDES.

  

In view of this changed situation, contact your clients who use independent contractors and make sure they understand this frightening new climate!! 

 

If any of your clients want to meet with me (by phone or in person) to review their independent contractor relationships, consider ways to lower liability in using independent contractors, go over websites which comment on their independent contractors, restructure or redraft independent contractor agreements, I would be glad to work with both you and them. These are new times. Government is growing ever more hostile and aggressive about independent contractor relationships.

 

 

 

Nancy Joerg offers cost-effective consultations with accountants and their clients on any legal issue or concern involving independent contractor status (or other employment law issues such as hiring, firing, terminations of employees, employee handbooks, unemployment insurance IDES claims and hearings, sex harassment, overtime issues, Department of Labor wage and hour overtime audits, etc.).

Nancy drafts and revises independent contractor agreements and also assist accountants and their clients in evaluating the liability of a certain company in its use of independent contractors. She also assists them in IRS defense, IRS Form SS-8 situations, etc.

Contact Attorney Nancy E. Joerg, Managing Shareholder of the St. Charles Illinois office of Wessels Sherman, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types.  Nancy Joerg can be reached at 630-377-1554 or email her at najoerg@wesselssherman.com

Nancy Joerg has been selected for the second year in a row to the 2016 Illinois Super Lawyers list. She has the highest rating - 10.0 SUPERB - from Avvo.  She has been honored by her peers as a "Leading Lawyer." Nancy was named as one of the Top Ten Women Attorneys in Kane, Kendall & DeKalb counties. In February 2016, she was honored by Chicago Magazine as a "Top Attorney in Illinois."

Top Five Questions Illinois Accountants Have Regarding IDES Audits

February 2016
By Nancy E. Joerg, Esq.

Because of shifting audit policies by the Illinois Department of Employment Security (IDES), I am receiving an increasing number of concerned phone calls from clients and their accountants. They ask me for clarification about the best way to handle IDES audits.

These are the top five questions and my answers regarding IDES audits of Illinois companies who use independent contractors:

QUESTION #1: How much can the IDES hit our company with if we get a fraud penalty?

ANSWER TO #1: IDES fraud penalties are a whopping 60% of the “contributions owed” as a result of the IDES audit. So, if a company has an assessment of $100,000 excluding interest, the fraud penalty would be $60,000 on top of the $100,000 owed (excluding interest) as a result of the IDES auditor deciding that the independent contractors for the years being audited are misclassified.

QUESTION #2: How much is the IDES interest rate and can that be negotiated down?

ANSWER TO #2: The IDES interest rate is a terrifying 24% per year (or 2% per month). Naturally, if an IDES auditor is auditing a year that is three years back, there is going to be more interest owed on any assessment that issues from that audit (as compared to an audit of just last year for example). Interest attached to IDES audits builds up at an alarming rate.

Unfortunately, IDES auditors do not have the authority to negotiate the interest rate.

QUESTION #3: What are these follow up audits that I keep hearing about?

ANSWER TO #3: The IDES recently started auditing companies that were previously audited by the IDES in recent years. These are called follow up audits. This is a radical departure for the IDES. Until recently, the IDES only audited companies who came up in a random selection or companies that had an independent contractor apply for unemployment insurance benefits (thereby creating what the IDES calls a “controversy”).

More and more follow up audits are being done by the IDES. This is very discouraging to companies who have just weathered an IDES audit and now find out they have go through another IDES audit.

The danger of follow up audits is that 60% fraud penalties become a real issue if the IDES auditor decides the company intentionally continued to classify workers as independent contractors when it was clear from the prior audit that the workers should be classified as employees.

QUESTION #4: Is it worth protesting an IDES audit?

ANSWER TO #4: In my opinion, it is always worthwhile to protest. By timely protesting the Determination & Assessment (tax bill), the company has the opportunity for a Hearing before an Administrative Law Judge. The Administrative Law Judge is an employee of the IDES, but the Administrative Law Judge is charged with the legal responsibility of fairly evaluating the issues involved in the audit and making an independent decision. It is not unusual for the Administrative Law Judge to exercise this independence and make a decision contrary to the decision of the IDES auditor and in favor of the company.

QUESTION #5: What are Objections?

ANSWER TO #5: If the company disagrees with the Decision of the Administrative Law Judge, a letter (called Objections) can be written by the company to object to the Decision. Objections do not have to be long and complex; they are not legal briefs. Objections are simply the written reasons why the company feels the Administrative Law Judge is in error in his/her Decision. The Objections process does not require a new hearing. It is simply a letter in protest of the Administrative Law Judge’s Decision.

 Questions? Consultations on Independent Contractor Status? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.

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.