Category: IRS Audit

Following a top-to-bottom review of enforcement efforts, the IRS has launched a sweeping, historic effort to “restore fairness in tax compliance” by focusing more on high-income earners, partnerships, and corporations. Under the auspices of a newly created unit in the business division, the IRS will leverage Inflation Reduction Act funding to enforce compliance. These efforts are consistent with a broader commitment to use that funding to end the era of misbalancing in audit selection.

THE TARGET

Pass-through organizations, the unit’s focus, include partnerships and S-corporations. These groups are not subject to the corporate income tax; instead, income is “passed through” to the income-tax returns of the individual or corporate owners and taxed at their income-tax rates. Pass-throughs are frequently used by higher-income individuals and can be complex tax arrangements.

A COORDINATED EFFORT

The IRS will coordinate with the National Treasury Employees Union (NTEU) on this enforcement effort. The NTEU is expected to be on board later this year. Meanwhile, work involving pass-through areas will continue to intensify.

The enforcement group will eventually include employees currently in the Large Business and International Division, and large partnerships, and, eventually, the Small Business/Self Employed division focusing on smaller partnerships and self-employed.

The changes will be driven with the help of improved technology and Artificial Intelligence that will aid the IRS compliance teams in detecting tax cheating, identifying emerging compliance threats, and improving case selection tools to avoid burdening taxpayers with needless “no-change” audits.

IMPORTANCE TO YOUR BUSINESS

While this new spotlight may not affect your business directly, the IRS’s tilt toward more scrutiny on high earners may. More than ever, business owners need the guidance of professionals in tax and financial planning. Why not set an appointment with your tax professional to review any business or personal tax strategies you have in place?

Receiving notification that the IRS wants to audit your prior-year tax return can be stressful. But knowing what to expect may help settle your nerves.

Types

There are three types of audits: correspondence (by mail), desk (at the IRS office) and field (at your business).

Timing

Generally, the IRS can go back three years to conduct an audit. And how long it takes to complete an audit varies depending on the complexity of the issues, the availability of audit evidence, flexibility of parties to schedule meetings and whether you agree with the auditor’s findings.

Finalizing

If you disagree with an auditor’s findings, you have the right to appeal or request mediation. Or you can request a meeting with an IRS manager.