IRS IS PLANNING MORE AUDITS FOR HIGH-INCOME FILERS, THE SELF-EMPLOYED AND S-CORPS-ARE YOU PREPARED?

The IRS estimates it is loosing billions each year to underreported income and overstated deductions. As a result, they are increasing their audits. The focus will be on filers with over $100,000 in income, self-employed businesses and S corporations. The IRS intends to continue to increase the percentage of returns it audits each year for years to come based on the findings of its audits.

The IRS is looking at ways to obtain more information on income by requiring more reporting on Form 1099. Currently, if an entity pays an individual or sole proprietor $600 or more, they are required to report the amount paid on form 1099. The IRS wants to change the requirement to include credit card firms to file on merchants and include reporting of payments to small corporations with fewer than 50 employees. Although this would help the IRS in determining income actually received, it would increase the burden on companies considerably. This would require Congress to approve these changes.

The IRS is also planning more line-by-line exams. This type of exam requires support for each line item you have on your tax return. The focus is on individuals and S Corporations at this time and will be expanded to include partnerships and exempt groups in the future. If you ensure that your accounting supports the tax return and you have a good audit trail from your original document to your accounting entries, you should be able to provide the IRS with what they need in case you are chosen for one of these audits.

The IRS is also looking at using leads provided by state audits to determine if there may be additional money owed to the IRS. This would require little effort on their part since the work has already been done by the state.

The IRS is going after tax revenue in a more aggressive fashion than it has in the past. In order to ensure that you are ready, you should make sure you have a system that allows you to have a trail from the original document to the accounting entry and then ultimately to the tax return. If your company needs help in setting up procedures and a system in order to ensure that you have an adequate trail in case you are audited, feel free to contact me to find out what your company may need.

Look for more articles in the future about forensic, accounting and tax issues. You can get RSS feed updates on the web site at RSS Feed.

Dianne Goodman, a CPA and Forensic CPA, and her company Comprehensive Small Business Solutions, PC, provides forensic, accounting and tax services located in Albuquerque, New Mexico, working in conjunction with lawyers, government entities and the business community. The type of services offered in addition to tax and accounting services include analyzing financial business related issues, divorce disputes, employee theft, evaluating internal procedures for effectiveness and suggesting possible courses of action for prevention of future occurrences and creation of databases and preparing and disbursing settlement proceeds to various classes of victims.

This article was intended to provide general information about IRS audits. It does not contain all the rules and issues that may apply. If you have further questions, I can be reached via E-mail.