New IRS audits aim at business owners.

One IRS campaign will focus on high-income self-employed and small-business owners who do not file income tax returns. The IRS will use information returns such as K-1s, W-2s, 1099s, and 1120S and 1065 partnership returns, review foreign-reported data, currency transactions and suspicious activity reports, and whistleblower claims.

 A second campaign will target high-income taxpayers who file complex returns—usually a 1040 that has flow-through income from S corps, partnerships, trusts and other financial interests. Unlike past audits, these will be conducted by teams of auditors simultaneously reviewing all or most sources of income on the return. Each auditor will focus on one part of the return, so that each entity associated with the return will be audited along with the individual taxpayer.

 Both campaigns may refer taxpayers for criminal investigation, but the first one emphasizes criminal referrals more because failure to file returns or report all income was done knowingly. Some audits in the first campaign will be initiated by letter, many will begin with an unannounced visit so the taxpayers’ statements will be on the record before they can consult with a tax advisor or review their records.

 What you should be doing right now… Anyone who might be included in either IRS campaign should be bringing themselves into compliance with tax law before the IRS audits begin.  

 [Tax Notes Today]

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