The Internal Revenue Service (IRS) LB&I audit division announced a series of campaigns for issues they have identified as ripe for noncompliance. LB&I handles tax examinations for businesses with assets in excess of $10 million. The success of these campaigns typically trickles down to other audit divisions and can become standard procedure.
One campaign is targeting S corporations that report losses to its shareholders, to verify that the shareholder has sufficient basis to deduct the loss. This does not mean every such S corporation will receive an audit notice. Some may be audited while others may receive letters questioning particular items on the return, asking for an explanation or clarification.
If you are a shareholder in an S corporation, we recommend that you review your basis schedule for accuracy or work with your tax advisor to begin maintaining one. It is the shareholder’s responsibility to support any loss claimed on the tax return.
For questions about this topic or more information, please contact Aronson’s Laurence C. Rubin, CPA, at 301.231.6200.