Feb 23, 2011 Article #67 Author: Peter S. Muffoletto, C.P.A.
Internal Revenue Service unleashes ‘Business oriented Audits’
The Internal Revenue Service has set up special audit groups focused to audit business taxpayers with complicated tax returns, and their complicated financial arrangements. The audits have already started and include intrusive rigorous probes of taxpayer activities including their investments looking for what the IRS suspects tax evasion strategies.
Some audits are specifically directed based upon the makeup of an individual’s tax returns, and the types of business entity that the business is conducted under with the initial focus on sole proprietors that file within their individual tax returns Schedule C; thereafter the IRS is expected to expand the focus of their audits on partnership returns, small corporations, and LLC’s.
Other audit focus is based upon information gained from other sources such as investment funds, real estate investment transactions, and who those taxpayers maybe doing business with. Some of the audits are being triggered by the new notice inquiry system the IRS recently enhanced based upon the responses or lack thereof to those inquiries issued by the IRS.
The audits to date have been designed to be particularly harsh as there appears to be a general directive for this special unit to specifically target business taxpayers.
Taxpayers are being asked to turn over enormous amounts of documents in short order. According to many in the professional community the audit techniques and tactics harken back to the type of audits that the IRS conducted in the 1960’s and 70’s which were not only extensively intrusive but went of for in some cases years.
The IRS unit began conducting audits earlier this year and is only recently getting up to speed, many of these audits considered as training audits for newer IRS personnel. One area of interest to the IRS are complex returns reflecting real estate investments, capital investment transactions, in other words stock and bond trades, and business ventures. The unit is headed in the National Office of the IRS by one of the most senior legal advisers in IRS commissioner's staff.
The IRS has assigned their most senior and experienced auditors around the country to these units with the sole purpose of investigating taxpayers’ businesses or investments in the same way as it looks at large corporate enterprises, in other words the IRS has pulled together its top talent to audit America’s business community through coordinated techniques and technology never before applied to individual taxpayers. In essence war has been declared on America’s business taxpayers.
The IRS states that the group is looking at "individuals who have a complex set of situations, and looking at the complete financial set up." The IRS in a news release stated that these audits will be full line by line audits examining every aspect of a targeted taxpayers business and personal life.
The IRS also has acknowledged that the individuals targeted rarely have appropriate professional assistance at the more sophisticated levels that these audits require and based upon this fact alone should in most probability derive substantial new tax revenues under the designed audit programs. These audits are designed in part with that fact in mind and to generate new revenues for a cash strapped government.