Friday, January 15, 2010

Are you in the IRS’s crosshairs?

Recent public announcements and internal memos to IRS agents give us an indication of some areas that will be scrutinized heavily in the coming months. Several areas to note:

Tax returns for S corporations have been statistically shown to have a very high error rate – 68%. Look for increased audits on these entities focusing on travel expenses, meals and entertainment, automobile expenses, and the big favorite, taking dividends in lieu of compensation to avoid payroll taxes.

Refund claims involving R&D credits are being looked at closely.

Random audits of payroll tax returns will commence next month. This is an area that has historically received little attention but is on the “A” list now. Agents will be looking to classify independent contractors as employees, and making sure fringe benefits are taxed properly.

Appraisers and valuation professionals will be on the hook for their work too. If an appraiser improperly misstates a value resulting in an overstated deduction or a lower tax, the appraiser could be on the hook for some large fines.

These are a few of the areas IRS will be focusing their sights on. If any of these apply to you it would be wise to get your ducks in order before you find out too late that its duck season!

3 comments:

H.O. said...
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H.O. said...
This comment has been removed by the author.
H.O. said...

I may have started the random payroll tax return audits. I had to keep extending my 2008 tax return last year due to a former employer that was reporting my payroll and a labor tax board settlement incorrectly. I even spoke to a couple of IRS representatives over the phone that agreed I was reporting the income correctly. But after several letters back and forth between my former employer, they were unwilling to change anything. So I sent in my tax returns and prepared them the way I thought they should be prepared with all back up docs showing my attempts to amend the situation with the employer. Result: the tax returns were accepted in my favor.