IRS Payroll Audit Checklist

A friend of mine had an IRS payroll audit (and passed with flying colors). Below is the actual checklist required by the IRS (I changed only the dates; all other information is original). If you fail this, they won’t revoke your tax-exempt status but they can issue fees and penalties.

As an administrator, please look at this checklist and see if you could give this information immediately to the IRS officer so that he or she is in your office for only a day or two. You don’t want them to stay long and the better organized your records are, the sooner you can return to your normal hectic work.

When a staff person or a committee member complains that you want too much paperwork, show them this checklist and explain that the IRS really does visit churches every single year and asks for this stuff; you’re just trying to protect the staff and church, not trying to do more paperwork.

The instructions below are directly from the IRS:

The following information is being requested for the examination of your Forms 941 for the period covering January 01, 20XX and ending December 31, 20XX. The information being requested will be used in examining the information provided on the return and will be used to determine the employment tax liability for your organization for the period of January 01, 20XX through December 31, 20XX.

Please provide the following documentation:

  1. Copies of Forms W-4 for all employees during 20XX
  2. Copies of Forms W-3 & W-2 for all employees during 20XX
  3. 20XX payroll ledger, check register, employee earning record and year end payroll summary
  4. 20XX general ledger, trial balance, and a chart of accounts
  5. All Bank statements for accounts used in 20XX
  6. 20XX Time cards, sign in sheets, or other method used to track employee hours
  7. Please provide copies of Forms 1096 & 1099 Misc. issued and filed for 20XX
  8. Copies of all employee credit card statements for 20XX
  9. Detailed explanation of payroll procedures, including whether reimbursement is handled under an Accountable or Non-Accountable plan
  10. List of names & addresses of all officers, directors & trustees to include compensation, if paid in 20XX. Also a current list of officers.
  11. Minute books of your governing body (Session) (Officers, Directors , Trustees) including compensation committees if available from January 1, 20XX to December 31, 20XX
  12. Employee personnel manual, job descriptions, compensation policy, and compensation comparable data if used
  13. Copies of Forms W-9
  14. Copies of prior and subsequent year employment tax returns Forms 941.
  15. If your employees were “leased” through a third party management company, or you used the services of a temporary staffing agency, please provide a copy of the contract(s) for 20XX
  16. Provide documentation for any resident or non-resident aliens used in 20XX; include copies of applicable 1042s filed
  17. A tour of the organization’s facilities, as well as a desk or work-area to work in during the examination

NOTE: Additional information may be requested in the future, including a meeting to discuss the supporting documentation you provide. It is to your benefit to provide clear and concise explanations and supporting documentation regarding the information being requested.