Monday, November 12, 2012
IRS Small Business Audit Areas
The IRS has announced selected business areas it is prioritizing for audit this upcoming fiscal year. The IRS is increasingly focused on small business underreporting, which it considers responsible for the majority of a $450 billion tax gap. Here are the areas:
1. Fringe benefits, especially use of company cars
The IRS is finding that employers are not correctly reporting employees’ personal use of company vehicles on Forms W-2.
2. Higher income taxpayers
The IRS will focus on self-employed taxpayers with gross receipts (that is, before expenses) of more than $1 million.
3. Form 1099-K matching
Forms 1099-K report payments from credit cards and payment clearinghouses (such as PayPal). The IRS granted a reprieve for 2012, but it announced that it will start Form 1099-K matching in 2013.
4. The small business employee health insurance tax credit
The IRS wants to make sure that small business employers and tax exempts are complying with credit eligibility requirements.
5. International transactions
The IRS has announced its third voluntary foreign bank account initiative and intends to look for offshore transactions.
6. Partnership returns reporting losses
This is a new area of emphasis. Expect the IRS to look into partnerships reporting large losses.
7. S corporations reporting losses and reasonable officer compensation
The IRS will be looking at S corporations claiming losses, looking for losses taken in excess of shareholder basis.
The IRS is also interested in profitable S corporations reporting little or no salary to officers.
8. Proper worker classification
The IRS is interested in employer treatment of worker versus independent contractor status. The IRS thinks there is significant noncompliance in this area.