Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. As we move closer to winter, the IRS has announced that it is turning up the heat on small business operations. At national and regional tax forums held earlier this year, the IRS pinpointed eight specific areas that it considers ripe for abuse. Here's a brief rundown.

1. Toll Free: 877.880.4477
Phone: 281.880.6525
Who Are the Latest IRS Audit Targets?
www.hrp.net

2. » As we move closer to winter, the IRS has announced that it is turning up
the heat on small business operations.
» This isn't surprising in light of recent IRS analysis indicating that
underreporting by small businesses is responsible for 84 percent of an
estimated $450 billion "tax gap" between the tax revenue that is owed
and the amount that has been collected.
» At national and regional tax forums held earlier this year, the IRS
pinpointed eight specific areas that it considers ripe for abuse. Here's a
brief rundown.
www.hrp.net

3. 1 Company Cars
1
• An IRS study on employment tax compliance revealed that
employers frequently don't report the taxable benefit that
employees receive from their personal use of company-owned cars.
• In addition to other fringe benefits, the IRS plans to focus on the use
of company cars, especially "luxury" models, in its next series of
audits.
www.hrp.net

4. 2 High Income Taxpayers
2
• The IRS defines a high-income taxpayer as someone who brings in a
certain amount of "total positive income" (TPI) -- gross receipts and
sources of income before expenses and deductions are claimed – for
the year.
• Continuing a recent trend, the tax agency will aggressively pursue
self-employed taxpayers with a TPI of more than $1 million. In 2011,
the IRS audited 12.5 percent of all individuals with incomes of more
than $1 million (up from 8.4 percent in 2010).
High Income Taxpayers
www.hrp.net

5. 3 Form 1099-K Matching
3
• Despite the recent reprieve from merchant credit card reporting on
business returns, the IRS will institute Form 1099-K matching next
year.
• It will be launching a new pilot program that will match up payee
statements with receipts.
www.hrp.net

6. 4 Health Insurance Credits
4
• Under the Patient Protection and Affordable Care Act (PPACA), a
qualified small business may be eligible for a credit for the health
insurance it pays for employees.
• The credit first became available in 2010 returns. Now, the IRS will
examine employers and nonprofits to determine eligibility under the
PPACA credit.
www.hrp.net

7. 5 Foreign Transactions
5
• In recent years, the IRS has stepped up efforts to uncover assets that
are being secretly stowed away by U.S. taxpayers in overseas
accounts.
• It will continue to focus on offshore transactions made by individuals
and businesses.
www.hrp.net

8. 6 Partnerships
6
• Abuses involving these pass-through entities have largely escaped
detection in the past, but no longer.
• Specifically, the IRS aims to target partnerships that have reported
large losses or have suspicious transactions on the books.
www.hrp.net

9. 7 S Corporations
7
• Similar to partnerships, S corporations are increasingly being
targeted for in-depth audits. The IRS wants to see if S corp. losses in
excess of basis are reasonable and if unreasonable compensation is
being paid to owners and officers.
• As part of these audits, IRS examiners will review basis computations
to determine if taxpayers are meeting due diligence requirements
before deducting losses on Form 1040. Another key issue is the use
of S corporation distributions to avoid payment of Social Security tax.
www.hrp.net

10. 8 Worker Classifications
8
• There are several incentives for employers to classify workers as
independent contractors instead of employees.
• Mainly, an employer isn't responsible for payroll taxes or fringe
benefits for outside contractors. This has been an on-going issue for
decades, but now the IRS intends to tighten up compliance of the
rules.
Payroll Taxes
www.hrp.net

11. » Now that you know where IRS audits of small businesses are likely to lead,
you may want to take appropriate steps to reduce your exposure in these
areas.
» However, just because a return is selected for audit does not mean that
an error has been made. Some returns are randomly selected or chosen
based on a statistical formula.
» For example, IRS computers compare income and deductions on a return
with what other taxpayers report. If an individual deducts a charitable
contribution that is significantly higher than what others with similar
incomes report are, the IRS may want to know why.
» Returns can also be selected for audit when they involve issues or
transactions with other taxpayers who were previously selected for
audit, such as a business partner or investor.
www.hrp.net

12. » An audit can be conducted by mail or through an in-person interview and
review of a taxpayer's records. The interview may be at an IRS office or
may be a "field audit" at the taxpayer's home, place of business, or
accountant's office. The IRS will tell you what records are needed.
» Even if your return is audited, an IRS examination may be nothing to lose
sleep over. In many cases, the IRS asks for proof of certain items and
"closes" the audit after the documentation is presented.
www.hrp.net

13. » Still afraid of an IRS audit? You probably don't have to attend. You can
stay home and designate your tax adviser to act on your behalf.
» The outcome may be far better. Getting tax and legal advice up front can
result in significant savings. Consult with your tax adviser about your
situation.
www.hrp.net

14. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA
Toll Free : 877.880.4477
Phone : 281.880.6525
Fax : 281.866.9426
E-mail : info@hrp.net
www.hrp.net