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The Chances of IRS Audit are Down But You Should Still be Prepared

The IRS just released its audit statistics for the 2018 fiscal year, and fewer taxpayers had their returns examined as compared with prior years. However, even though a small percentage of tax returns are being chosen for audit these days, that will be little consolation if yours is one of them.

Latest statistics

Overall, just 0.59% of individual tax returns were audited in 2018, as compared with 0.62% in 2017. This was the lowest percentage of audits conducted since 2002.

However, as in the past, those with very high incomes face greater odds. For example, in 2018, 2.21% of taxpayers with adjusted gross incomes (AGIs) of between $1 million and $5 million were audited (down from 3.52% in 2017).

The richest taxpayers, those with AGIs of $10 million and more, experienced a steep decline in audits. In 2018, 6.66% of their returns were audited, compared with 14.52% in 2017.

By Linkenheimer LLP|2020-09-03T20:03:56+00:00June 3rd, 2019|audit, irs, tax planning, taxpayer|0 Comments

IRS Audit Techniques Guides Provide Clues to What May Come Up If Your Business is Audited

IRS examiners use Audit Techniques Guides (ATGs) to prepare for audits — and so can small business owners. Many ATGs target specific industries, such as construction. Others address issues that frequently arise in audits, such as executive compensation and fringe benefits. These publications can provide valuable insights into issues that might surface if your business is audited.

What do ATGs cover?

The IRS compiles information obtained from past examinations of taxpayers and publishes its findings in ATGs. Typically, these publications explain:

The nature of the industry or issue,
Accounting methods commonly used in an industry,
Relevant audit examination techniques,
Common and industry-specific compliance issues,
Business practices,
Industry terminology, and
Sample interview questions.

By using a specific ATG, an examiner may, for example, be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the taxpayer resides.

What do ATGs advise?

ATGs cover the types of documentation IRS examiners should request from taxpayers and what relevant information might be uncovered during a tour of the business premises. These guides are intended in part to help examiners identify potential sources of income that could otherwise slip through the cracks.

Other issues […]

By Linkenheimer LLP|2020-09-03T20:04:41+00:00May 9th, 2018|audit, irs|0 Comments

Fewer IRS Audits Predicted for 2015

In an email to employees, IRS Commissioner John Koskinen said the IRS will not be able to close as many audits in 2015 due to the agency’s budget cuts. With a reduction in enforcement personnel (they announced a hiring freeze in December), he indicated that there will likely be at least 46,000 fewer individual and business audit closures and more than 280,000 fewer collections from automated notices or field revenue agents. Additionally, two furlough days for IRS employees in 2015 may be planned. Furthermore, aging information technology systems will not be replaced, which could delay new taxpayer protections against identity theft. This announcement comes on the heels of a budget reduction for the agency of $346 million during the remaining nine months of the fiscal year ending 9/30/15, which, according to the Commissioner, is the lowest funding since 2008.

By Linkenheimer LLP|2020-09-03T20:05:33+00:00January 29th, 2015|audit, irs|0 Comments

Californians can expect Head of Household Audit Letters

The California Franchise Tax Board (FTB) has mailed more than 120,000 audit letters to taxpayers to verify their head of household (HOH) filing status on their 2011 state income tax returns. Each year, the FTB reviews the tax returns of taxpayers who claim the HOH filing status because the qualifications are commonly misunderstood. Taxpayers can generally claim the HOH filing status if they are unmarried, have cared for a qualified person for more than half the year, and paid more than half the cost of maintaining their home.

Taxpayers who do not qualify will have their tax reassessed using either the single or married-filing-separate filing status. Nearly 28,000 California taxpayers who claimed the HOH status last year did not meet its requirements.

The FTB encourages taxpayers who receive an HOH audit letter to respond promptly by completing the enclosed questionnaire. Failure to respond could result in a tax assessment and penalty.

News Release, California Franchise Tax. Board, August 8, 2012

By Linkenheimer LLP|2020-09-03T20:06:02+00:00August 13th, 2012|audit, CPA, head of household, HOH, letter, Linkenheimer, Santa Rosa, state income, taxpayers california franchise tax board|0 Comments