October 2015
By Nancy E. Joerg, Esq.
Confusion Alert!! Over the many years in which I have been assisting Illinois companies who are audited by the Illinois Department of Employment Security (IDES), some of the most
tragic circumstances are when the company being audited
inadvertently fails to protest the IDES Notice of Determination and Assessment (tax bill) because they did not recognize the document itself!
The purpose of this article is to warn the unsuspecting reader that there are several kinds of confusing letters that the IDES will mail to the company being audited after the IDES audit has concluded. EXIT INTERVIEW: The “exit interview” as given by the auditor signals the true end of the IDES audit. The “exit interview” is usually conducted by phone (the auditor speaks in detail to the individual whom the auditor has been working with during the audit). The auditor goes over all of his or her conclusions from the audit. For example, the auditor might explain why he or she believes ten of the independent contractors in the audit year should have been reported as employees to the IDES. Surprisingly, the auditor does not give a dollar figure as to money now owed!
After the exit interview, several poorly explained letters come in the mail to the company over approximately four weeks, and this process is extremely confusing to the company.
AUDIT FINDINGS LETTER: After an IDES audit is concluded, usually the first letter that comes in the mail from the IDES is called the “Audit Findings” letter. The Audit Findings letter cannot be protested by the Company and is
purely informational and often confusing!
The Audit Findings Letter contains a chart which shows the taxable wages that have resulted from the “unreported payroll.” The unreported payroll is the payroll the company should have reported to the IDES for the audit year, but failed to do so (either because the company made a mistake or because the company was in error (per the auditor!) using independent contractors who should have been treated as employees for IDES purposes).
Below is a sample chart from an Audit Findings Letter:
|
Reported
|
Per
Audit
|
Unreported
|
Over-Reported
|
Net
Change
|
Total
Payroll
|
$48,511.01
|
$78,062.51
|
$29,551.50
|
$0.00
|
$29,551.50
|
Taxable
Wages
|
$12,900.00
|
$40,145.50
|
|
|
$27,245.50
|
#
Workers
|
1
|
4
|
3
|
|
|
Surprisingly, the Audit Findings letter does
not tell how much money the company will be required to pay as a result of the audit.
The Audit Findings letter is very limited -- it really only communicates the amount of wages that the company should have treated as taxable wages for purposes of sending in contributions to the IDES for the year in question. Clients find this letter very unsatisfactory.
AUDIT RESULTS LETTER: The next letter that usually comes in the mail is called the “Audit Results” letter. It is sent by an IDES Revenue Supervisor. Be aware that often the Audit Results letter is a
cover letter of explanation to the Notice of Determination and Assessment (in other words, you may receive both the Audit Results letter AND the Notice of Determination and Assessment at the same time!).
The Audit Results letter re-states some of the information provided in the Audit Findings letter by once again showing the
total wages under-reported and the
taxable wages under-reported. Enclosed with the Audit Results letter are the Field Contribution Reports. The Field Contribution Reports show,
quarter by quarter, the taxable wages and the contributions due. The Field Contribution Reports also show the individual worker changes per the audit.
The company does not have to respond in any way to the Audit Results letter (again, informational only!), but the company can (and usually should) protest the IDES Notice of Determination and Assessment (tax bill) when it does come in the mail—and the Notice of Determination & Assessment often comes with the Audit Results letter.
NOTICE OF DETERMINATION & ASSESSMENT: The IDES sends the Notice of Determination and Assessment (tax bill) via certified mail so that the IDES has solid proof that the company was served on a certain date.
Then,
the company has only 20 short days from the mailing date of the Notice of Determination & Assessment in which to timely protest the Notice of Determination and Assessment.
The Notice of Determination and Assessment (tax bill) shows 1) how much the company owes the IDES for back contributions that were not paid, 2) how much the company owes in interest (24% per year, 2% per month), and 3) the total amount due.
Note that the company can pay
and also protest. Paying the Determination & Assessment to the IDES does not in any way impact the ability to effectively protest the Determination & Assessment and go forward to an Administrative Hearing.
On the other hand, if the company decides to protest and doesn’t wish to pay, the company can make that business decision. The amount owed to the IDES will continue to accrue at the 2% per month interest rate. Of course, if the company decides not to protest, then the contributions and interest which resulted from the audit will be due and owing to the IDES. If the company does not pay, a collection agency for the IDES starts making phone calls to the company.
There are payment plans that companies can sometimes arrange with the IDES. These payment plans are developed on a case-by-case basis with the IDES and usually require some money up front.
WARNING ABOUT MULTIPLE DETERMINATIONS & ASSESSMENTS: It used to be that
just one Determination & Assessment would be issued to cover the entire time frame of the audit.
However, sometimes the IDES sends (with no warning or notice!) multiple Determinations & Assessments to the Company for different quarters, years, etc.
Some poor folks have mistakenly thought that the multiple Determinations & Assessments were merely duplicative, and they therefore did not protest each Determination & Assessment. They therefore
lost all rights to appeal the audit results covered by the time periods that were not protested. Because they could no longer appeal, the Determination & Assessment became final, due and owing to the IDES. A terrible experience!
Be sure to timely protest EACH AND EVERY Determination & Assessment. Even one day late is fatal to the ability to appeal.
The real message of this article is for companies to immediately
open any and all mail that comes from the IDES. Look to see whether or not it is correspondence that needs to be protested in a timely manner. Scrutinize the documents for due dates.
For assistance with an IDES audit or evaluating your use of Independent Contractors, contact Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.