We are aware that for many of you, the thought of an audit can get your blood pressure racing. We want to help you by informing you of audit target areas that might likely come under scrutiny by the Internal Revenue Service.
As we wrote about in our last six posts, the IRS repeatedly analyzes compliance levels for entities, issues and industries. The IRS conducts hundreds of compliance projects and initiatives each year. The IRS has announced emerging or significant areas that it will prioritize for the coming year. This is our seventh tip in our series of eight. Look out for our next and final post for the last audit area.
Seventh target area for IRS tax audits:
S corporations, with an emphasis on losses in excess of basis and reasonable compensation paid to officers. The IRS is interested in S corporation audits in which losses are taken in excess of basis on shareholder returns. The IRS will review basis computations in these audits to determine whether tax preparers are properly completing due diligence requirements before deducting losses on Form 1040. The IRS is also interested in the use of S corporation distributions to avoid payment of Social Security taxes. The IRS will focus on S corporations with income, distributions and little or no salary paid to officers.