Toll Free: 877.880.4477                             Phone: 281.880.6525Who Are the Latest IRS Audit Targets?              ...
» As we move closer to winter, the IRS has announced that it is turning up  the heat on small business operations.» This i...
1 Company Cars1  • An IRS study on employment tax compliance revealed that   employers frequently dont report the taxable ...
2 High Income Taxpayers2  • The IRS defines a high-income taxpayer as someone who brings in a   certain amount of "total p...
3 Form 1099-K Matching3  • Despite the recent reprieve from merchant credit card reporting on    business returns, the IRS...
4 Health Insurance Credits4  • Under the Patient Protection and Affordable Care Act (PPACA), a   qualified small business ...
5 Foreign Transactions5  • In recent years, the IRS has stepped up efforts to uncover assets that   are being secretly sto...
6 Partnerships6  • Abuses involving these pass-through entities have largely escaped   detection in the past, but no longe...
7 S Corporations7  • Similar to partnerships, S corporations are increasingly being   targeted for in-depth audits. The IR...
8 Worker Classifications8  • There are several incentives for employers to classify workers as    independent contractors ...
» Now that you know where IRS audits of small businesses are likely to lead,  you may want to take appropriate steps to re...
» An audit can be conducted by mail or through an in-person interview and  review of a taxpayers records. The interview ma...
» Still afraid of an IRS audit? You probably dont have to attend. You can  stay home and designate your tax adviser to act...
14550 Torrey Chase, Suite 100 Houston, TX 77014 USA             Toll Free : 877.880.4477             Phone : 281.880.6525 ...
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Who Are the Latest IRS Audit Targets?

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Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. As we move closer to winter, the IRS has announced that it is turning up the heat on small business operations. At national and regional tax forums held earlier this year, the IRS pinpointed eight specific areas that it considers ripe for abuse. Here's a brief rundown.

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Who Are the Latest IRS Audit Targets?

  1. 1. Toll Free: 877.880.4477 Phone: 281.880.6525Who Are the Latest IRS Audit Targets? www.hrp.net
  2. 2. » As we move closer to winter, the IRS has announced that it is turning up the heat on small business operations.» This isnt surprising in light of recent IRS analysis indicating that underreporting by small businesses is responsible for 84 percent of an estimated $450 billion "tax gap" between the tax revenue that is owed and the amount that has been collected.» At national and regional tax forums held earlier this year, the IRS pinpointed eight specific areas that it considers ripe for abuse. Heres a brief rundown. www.hrp.net
  3. 3. 1 Company Cars1 • An IRS study on employment tax compliance revealed that employers frequently dont report the taxable benefit that employees receive from their personal use of company-owned cars. • In addition to other fringe benefits, the IRS plans to focus on the use of company cars, especially "luxury" models, in its next series of audits. www.hrp.net
  4. 4. 2 High Income Taxpayers2 • The IRS defines a high-income taxpayer as someone who brings in a certain amount of "total positive income" (TPI) -- gross receipts and sources of income before expenses and deductions are claimed – for the year. • Continuing a recent trend, the tax agency will aggressively pursue self-employed taxpayers with a TPI of more than $1 million. In 2011, the IRS audited 12.5 percent of all individuals with incomes of more than $1 million (up from 8.4 percent in 2010). High Income Taxpayers www.hrp.net
  5. 5. 3 Form 1099-K Matching3 • Despite the recent reprieve from merchant credit card reporting on business returns, the IRS will institute Form 1099-K matching next year. • It will be launching a new pilot program that will match up payee statements with receipts. www.hrp.net
  6. 6. 4 Health Insurance Credits4 • Under the Patient Protection and Affordable Care Act (PPACA), a qualified small business may be eligible for a credit for the health insurance it pays for employees. • The credit first became available in 2010 returns. Now, the IRS will examine employers and nonprofits to determine eligibility under the PPACA credit. www.hrp.net
  7. 7. 5 Foreign Transactions5 • In recent years, the IRS has stepped up efforts to uncover assets that are being secretly stowed away by U.S. taxpayers in overseas accounts. • It will continue to focus on offshore transactions made by individuals and businesses. www.hrp.net
  8. 8. 6 Partnerships6 • Abuses involving these pass-through entities have largely escaped detection in the past, but no longer. • Specifically, the IRS aims to target partnerships that have reported large losses or have suspicious transactions on the books. www.hrp.net
  9. 9. 7 S Corporations7 • Similar to partnerships, S corporations are increasingly being targeted for in-depth audits. The IRS wants to see if S corp. losses in excess of basis are reasonable and if unreasonable compensation is being paid to owners and officers. • As part of these audits, IRS examiners will review basis computations to determine if taxpayers are meeting due diligence requirements before deducting losses on Form 1040. Another key issue is the use of S corporation distributions to avoid payment of Social Security tax. www.hrp.net
  10. 10. 8 Worker Classifications8 • There are several incentives for employers to classify workers as independent contractors instead of employees. • Mainly, an employer isnt responsible for payroll taxes or fringe benefits for outside contractors. This has been an on-going issue for decades, but now the IRS intends to tighten up compliance of the rules. Payroll Taxes www.hrp.net
  11. 11. » Now that you know where IRS audits of small businesses are likely to lead, you may want to take appropriate steps to reduce your exposure in these areas.» However, just because a return is selected for audit does not mean that an error has been made. Some returns are randomly selected or chosen based on a statistical formula.» For example, IRS computers compare income and deductions on a return with what other taxpayers report. If an individual deducts a charitable contribution that is significantly higher than what others with similar incomes report are, the IRS may want to know why.» Returns can also be selected for audit when they involve issues or transactions with other taxpayers who were previously selected for audit, such as a business partner or investor. www.hrp.net
  12. 12. » An audit can be conducted by mail or through an in-person interview and review of a taxpayers records. The interview may be at an IRS office or may be a "field audit" at the taxpayers home, place of business, or accountants office. The IRS will tell you what records are needed.» Even if your return is audited, an IRS examination may be nothing to lose sleep over. In many cases, the IRS asks for proof of certain items and "closes" the audit after the documentation is presented. www.hrp.net
  13. 13. » Still afraid of an IRS audit? You probably dont have to attend. You can stay home and designate your tax adviser to act on your behalf.» The outcome may be far better. Getting tax and legal advice up front can result in significant savings. Consult with your tax adviser about your situation. www.hrp.net
  14. 14. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA Toll Free : 877.880.4477 Phone : 281.880.6525 Fax : 281.866.9426 E-mail : info@hrp.net www.hrp.net

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