Practice Areas

Handling IDES Audits: Section 212(A), (B) and (C)

by Nancy E. Joerg, Esq.

"It is amazing, and distressing, to me when I see what some of my clients have handed over to the IDES prior to my getting involved with the case."

Over the many years during which I have represented Illinois companies in the face of Illinois Department of Employment Security (IDES) audit challenges, I have been struck by how much more effective my legal representation is if I am called in on the case right at the beginning - when the company first received its Notice of Audit from the IDES.

Frequently, accountants, enrolled agents, corporate counsel, human resource people, and others will not call me until they have "flunked" the IDES audit, and are in a position of having to protest the Determination and Assessment (tax bill) that is thrown onto the company as a result of losing at the IDES audit.

Preferable to Win at Audit Level. Of course, sometimes we are successful in winning at the IDES Hearing level, but it is preferable to win at the initial IDES audit level. First of all, the legal fees will be substantially less if the battle with the IDES is won during "the first round" (i.e., the audit stage). Secondly, there is much better control of all information that is given to the IDES if someone knowledgeable about the Illinois Unemployment Insurance Act (and all of its provisions and regulations) is steering the company defense right from the start of the IDES investigation.

It is amazing, and distressing, to me when I see what some of my clients have handed over to the IDES prior to my getting involved with the case. Particularly when the issue of independent contractor status arises, client companies (unknowingly!) give much harmful and irrelevant information to the IDES, and this becomes a permanent part of the company's IDES file, even when they proceed to protest the Determination and Assessment and go to an IDES Hearing.

Audit Questionnaires. Again referencing the independent contractor issue, the IDES uses a six-page detailed Worker Relationship Questionnaire to decide if a particular worker is an independent contractor or an employee for purposes of Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act (or, the IDES might use the new Questionnaire for Section 212.1, truck owner-operators). I cannot emphasize enough how incredibly important it is for an attorney, extremely well versed on these Questionnaires, to help the company plan its best responses to each and every question. Many of the questions on the Questionnaires are "trick questions," and simply "being honest" is never enough, because there are many ways to express the honest reality of the independent contractor relationship. For example, certain terms and words should never be used, whereas other terms and words should always be used, wherever possible, depending upon the true facts and circumstances of the case.

Also, at the audit level, many persuasive documents can be given to the IDES auditor. Even though these documents may not be strictly the "whole legal test" for independent contractor status, if they are presented to the auditor in the proper fashion, with the right persuasive arguments, sometimes the auditor will decide not to reclassify those workers, even though they may technically "fall short" of Section 212(A), (B) and (C).

Moral of the Story... Get competent legal representation immediately in the face of an IDES audit, especially on the subject of independent contractor status. The same principles apply to IRS audits or workers' compensation insurance audits on the subject of independent contractor status. Get help immediately - as soon as you receive your Notice of Audit - and do not wait until you are in trouble and hit with an Assessment that you must protest before you really get your defense strategy and information in the proper order.