The IRS figures the more, the merrier. That is why it has announced it is teaming up with more than half of the individual states to resolve employment tax issues and corral offenders. This collaborative effort is intended to provide a centralized and uniform methodology for improving employer compliance in this area.

Details: The new initiative is the by-product of the teamwork between various state agencies, the U.S. Department of Labor, the National Association of State Workforce Agencies, the Federation of Tax Administrators and the IRS.

As of this writing, 29 states are participating in information-sharing agreements. They are, in alphabetical order: Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin. More are expected to follow.

The IRS and the states are hoping that their joint efforts will reduce fraudulent filings, uncover tax avoidance schemes and ensure proper worker classifications. In particular, it will try to clarify the features distinguishing independent contractors from employees. This classification of workers is often contested by both sides.

What can employers expect to occur? The IRS and the participating states hope to accomplish the following:

*An exchange of employment tax information for civil cases involving attempts to evade or inappropriately reduce employment tax liabilities;

*An exchange of information using either actual employment tax reports or a template compatible with federal and state information that the oversight team has developed;

*Participation in coordinated enforcement efforts;

*Sharing of independently conducted examination results or side-by-side cooperation on an examination;

*A concerted attempt to be consistent with their examination results, reducing the chances that states might classify a worker as an employee while the IRS classifies the worker as an independent contractor or vice versa;

*Sharing employment tax training opportunities and materials; and

*Sharing outreach opportunities to the business community whenever that is practical.

The new initiative meets the necessary disclosure requirements for ensuring the privacy of taxpayer information. In addition, all participating states must demonstrate that they have systems in place to ensure the safety of any IRS data they will receive as a part of the information-sharing agreements.

More to come: The joint crackdown is also expected to result in legislative proposals to promote increased fairness and confidence in the tax system. Stay tuned for further developments relating to employment taxes.