Taxpayers should be aware of increased audits — Bloomberg News recently reported about the increasing number of audits conducted on high-net worth individuals. While overall audits have decreased, the IRS is focusing their time where they feel they can get the most bang for their buck. Historically known for utilizing more complex tax strategies, it’s important that high-net worth taxpayers make sure their support documents are readily available to backup potentially aggressive claims.
A representative of Deloitte has listed the IRS’s “favorite issues” of focus. The list includes:
Additionally, the IRS is distributing mass notices that address specific issues. For example, taxpayers claiming large charitable deductions should expect an automated notice requesting support. The best practice for addressing any notices or audit requests that come up is to respond promptly and with thorough support. Should you find yourself on the receiving end of an audit, please reach out to your accountant for support.
For questions or more information, please contact Aronson’s Jennifer Moss at Jmoss@aronsonllc.com.
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.