In 2012, the IRS continued to focus on correspondence (mail) examinations, which contributed to an overall audit coverage rate of slightly more than 1% for individual taxpayers. This rate dropped slightly in 2012 due to a reduction in examination personnel. The IRS will continue to focus on Schedule A deductions and tax credits in these examinations.
In 2012, the IRS started to focus closely on flow-through entities, and increased field examinations of partnerships and S corporations by 18.7%. In 2013, the IRS will focus on partnerships, looking closely at abusive transactions and under-reported income, and on S corporations, looking closely at officer compensation and losses taken in excess of basis. IRS field agents will also continue to investigate small businesses, including e-commerce, for under-reported income in 2013.
In 2012, the IRS emphasized accuracy-related penalty assessments and held preparers responsible for return errors and omissions, especially in areas of rental property and deducting S corporation losses in excess of basis. This trend will continue in 2013.
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