From GT Law

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This is really good news. This will stop small consulting companies from abusing these visas.

From the GT Law alert doc (pdf)

The Internal Revenue Service (IRS) recently announced that it will start conducting audits of withholding agents related to payments made to nonresident foreign nationals as a "Tier 1" issue. These audits may be mandatory for certain employers sponsoring foreign nationals working in the United States on H-1B visas. Therefore, all such employers who are audited by the IRS's Large and Mid-size Business (LMSB) Division can expect to have inspected their reporting (Forms 1042 & 1042-S) and withholding obligations under IRC 1441.

Here is the IRS article:

Description of Issue

• U.S. persons (individuals, corporations, partnerships, etc.) who make payments of certain types of U.S. sourced income to non-resident aliens generally must withhold tax at a rate of 30% on such payments, unless there are applicable treaty provisions allowing for a reduced rate.
• Such payments are generally subject to reporting on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
• The person making these payments – generally referred to as a U.S. withholding agent – is responsible for the withholding and reporting.
• The IRS has current initiatives focused on the compliance of U.S. withholding agents with regard to these reporting and withholding responsibilities.
• Issues such as securities lending, payments to foreign vendors and potential use of total return swaps to minimize withholding tax are just some of the issues of concern.
• The IRS is also focusing on the quality of the overall reporting and withholding systems and procedures of the withholding agents to ensure proper classification of payments, sourcing, and the validity of documentation of foreign persons.