In the most recent measure of the Internal Revenue Service’s power over small businesses, the agency has announced eight new audit areas it will emphasize in 2013. The IRS claims that underreporting on taxes by small businesses accounts for about 84 percent of the U.S.’s $450 billion tax gap. Small businesses in Texas facing possible audit fraud cases due to such aggressive policies should contact a qualified attorney specializing in tax law to ensure their interests are properly defended.
One area on which the IRS plans to focus is high-income taxpayers, whom the agency defines as those with total yearly revenues of $200,000 or more. This includes all a taxpayer’s sources of income before deductions and expenses. The IRS announced it will place particular emphasis on taxpayers who file a Schedule C business return with total incomes of greater than $1 million, continuing a trend demonstrated in recent years. In 2010, the IRS audited 8.4 percent of all taxpayers with incomes of greater than $1 million, but that figure increased to 12.5 percent in 2011.
The IRS will also more thoroughly investigate the use of other fringe benefits after early research on employment tax compliance suggested that many small business employers were failing to report their employees’ personal use of company cars on their tax returns. Small businesses with luxury cars are likely to fall under scrutiny.
The IRS believes that a significant number of small businesses have wrongfully misclassified their workers. This is because it typically costs about 30 percent less to hire an independent contracter than an employee. The agency also believes a significant number of business owners are attempting to hide assets by placing them in overseas accounts.
These are only a few of the many ways in which the IRS plans to target small businesses, making it important for the owners of such businesses to be prepared for potential audits.
Source: Examiner, “IRS announces increased audits on small businesses in 2013,” Jennifer Capezzuto, Sep. 17, 2012