IRS Audit Targets in 2015
The Government Accounting Office says that since FY 2010, the IRS has lost 10,000 employees and had its budget reduced by $900 million. More cuts are proposed for the 2015 IRS budget. Identity theft, foreign asset reporting, and Obamacare enforcement responsibilities have all been added to the IRS plate in that time as well and will continue to absorb personnel and resources. This budget reality will hamper IRS audit goals, but there are still four targets to be aware of for 2015.
$1 Million+ Earners and their Businesses. Approximately 9% of this group is anticipated to be audited in the next 12-18 months. These taxpayers often have flow-through entities and the audits are frequently expected to expand into them as well.
Partnership Returns. This is the fastest growing segment of all tax returns filed and the growth hasn’t escaped the IRS. Particularly flow-through losses from developers and real estate investors are getting special attention. The audit rate of partnerships and LLCs in 2013 was 0.42%. This IRS is providing its auditors with special training this year to increase this rate and capture more revenue.
Employment Taxes. The IRS is continuing to focus in here areas: (1) Employee vs Independent Contractor; (2) Form 1099 compliance, and (3) S-Corporation reasonable compensation issues. Remember also that when the Obamacare employer mandate takes effect in 2015, who’s classified as an employee (vs. an independent contractor) becomes even more important. This is a definite area to watch.
1099-K Businesses. The “tax gap” remains a priority, so cash intensive businesses will receive a little more attention from the IRS. Their primary tool is Form 1099-K, filed by credit card processors and reflecting the amount of transactions. The IRS will use this information to more specifically target these businesses.
No one enjoys audits. But you don’t need to fear them if you’re prepared. And keep in mind that with the budget cuts, the IRS has been unable to keep it’s QuickBooks software versions current (the accounting system used by 94% of small businesses) so the IRS will likely have to work harder to conduct business audits. Keep records, be detailed, and be reasonable. And even if you’re selected, you’ve got a good chance of prevailing.
Are you being audited by the IRS? Call us today at (480) 888-7111 to schedule your free tax consultation.