Under memoranda of understanding (MOUs) that IRS has with 37 states, IRS and state workforce agencies (SWAs) are permitted to: (1) exchange audit reports; (2) exchange audit plans; (3) participate in side-by-side examinations, when appropriate; (4) receive information; and (5) participate in reciprocal sharing of information. After IRS conducts a worker classification examination that results in the misclassification of an employee as an independent contractor, it determines whether information regarding the examination should be forwarded to the appropriate SWA. SWAs make a similar determination when they conduct an employment examination. Since 2004, IRS has been using information received from states to identify potential candidates for employment tax examinations.

In 2009, IRS announced that it would be launching an Employment Tax National Research Project . Under the Employment Tax National Research Project (NRP), IRS selected approximately 2,000 employment tax returns for each calendar year 2008, 2009 and 2010. It began examining the 2008 returns in the spring of 2010. Of the more than 6,000 returns selected for examination, IRS has closed about 70 percent of the cases. IRS now expects to complete the remaining examinations in eight to ten months.

Once the NRP examinations are completed, IRS intends to turn the attention of its employment tax agents who have been working on the NRP examinations to worker classification referrals from SWAs. This will increase the likelihood that an employer that has been the subject of an SWA employment examination (whether labor or tax related) will find itself the subject of an IRS employment examination.