IRS Audit & Refund Notice Assistance for Recruiting Agents in New York City

Do not ignore it and do not just pay it, because most matching notices are resolved with documentation rather than additional tax. The notice means the IRS computer compared the 1099-NEC forms your clients filed against the income on your Schedule C and found a gap. Often the gap is not real, the fee was reported under a different line, netted against a refunded placement, or the client filed an incorrect 1099. The notice proposes additional tax, but it is a proposal, not a final bill, and you have a window to respond with proof. On a $33,000 placement fee flagged as missing, showing that it was in fact reported usually closes the notice with no change. The danger is the deadline, ignore the notice and the proposed tax becomes an assessment with penalty and interest. We reconcile your reported income against every 1099 your clients filed, prepare the response with the supporting records, and resolve the notice before it hardens into a bill.

Schedule C filers face somewhat higher audit attention than W-2 employees because the deductions are self-reported and harder for the IRS to verify automatically, but the odds for any given recruiter remain low if the return is clean and the deductions are ordinary for the trade. What draws scrutiny is a deduction that looks outsized relative to income, a very large home-office claim, heavy travel and meals, or vehicle expense that does not fit a recruiting practice. The deductions a recruiter normally takes, LinkedIn Recruiter, job boards, the ATS or CRM, sourcing tools, and a reasonable home office, are well-supported business costs when documented. On $12,000 of annual tooling spend, the defense is simply the invoices and the business purpose. The best protection is contemporaneous records, keep the subscriptions, receipts, and a clean mileage or home-office basis, and an audit becomes a paperwork exercise rather than a fight. We keep your substantiation organized so that if an exam comes, every deduction is already backed by proof.

A reclassification is the costliest staffing exam outcome, because it reaches back across the years the workers were misclassified. If the IRS or New York decides the temporary or contract workers you treated as independent contractors should have been W-2 employees, you can owe the employer share of payroll tax, the income tax that should have been withheld, and penalties and interest on top, potentially across multiple years. A recruiter who ran a dozen contractors later reclassified can face an assessment well into five figures. The defense is built on the facts, the degree of control you exercised, the way the workers operated, the contracts, and whether you had a reasonable basis for treating them as contractors. There are also relief provisions, including Section 530 relief, that can limit or eliminate the back tax when you had a consistent and reasonable basis for the classification. We respond to a classification review with the documentation and the relief arguments the facts support, so a reclassification is contained rather than financially devastating.

Because New York City can assess the unincorporated business tax on a recruiter it believes owes it, even for years no return was filed. The UBT applies at about 4 percent to the net income of a sole proprietorship or partnership operating in the city above a modest exemption, and if the city’s records show business income tied to a city address with no UBT return, it can send a notice proposing the tax for the open years. The notice is not automatically correct. The right response establishes the actual filing position, whether your income is genuinely subject to UBT, whether an exemption applies, or whether your entity, such as an S corporation, is exempt from UBT and pays the general corporation tax instead. On a recruiter netting $200,000, a wrong UBT assessment can run into several thousand dollars, so the response has to be precise. We determine the correct position, file or amend as needed, and respond to the notice so you pay the UBT you actually owe and not a dollar the city assessed in error.

The window depends on the notice, but most give you 30 days, and a few of the more serious ones give 90, so the safe rule is to act immediately rather than wait. An automated matching notice typically allows 30 days to respond before the proposed tax is assessed. A statutory notice of deficiency, the formal letter that precedes Tax Court rights, gives 90 days and is a hard deadline you cannot extend. New York State and New York City notices carry their own response windows, often 30 days, and missing them lets the assessment become final and collectible. Letting any of these lapse turns a contestable proposal into a fixed bill with penalty and interest, and on a disputed $33,000 fee or a UBT assessment of several thousand dollars, that is real money lost simply to a missed date. We track the response deadline the moment a notice arrives, prepare the answer with the supporting documentation, and file it well inside the window so your right to contest the notice is preserved.