Small businesses and accountants need to be aware that IRS will step up its efforts in auditing small corporations.

IRS is planning to increase the number of random line-by-line tax audits of small corporations in a near future. The examiners will randomly select the 2010 returns of approximately 2,500 corporations with total assets of less than $250,000 to look for the signs of noncompliance by firms and their owners. The IRS will use the findings to update its return selection formulas.

The average tax deficiency per exam of closely held firms has increased more than 58%. The Service gets productive leads from outside sources, such as States referrals. But, it is clear that the Service needs to update its return selection formulas: approximately 30% of tax audits of closely held firms result in no change in taxes.

IRS has validated new audit techniques for businesses with electronic records. The IRS summons metadata; this information shows how the records of the company were created and whether they were altered in any way. Agents are more productive in determining whether changes were made to the records and by whom. This can be useful in uncovering fraud if the changes are related to lowering income or boosting deductions.

A lot more penalties are imposed by the IRS agents on taxpayers, especially for large understatements and negligence. In the past five years, there has been an 800% increase in accuracy penalties assessed on individuals and nearly threefold increase in penalties on businesses. However, over 25% of the $1 billion in accuracy penalties that were levied on individuals in 2010 were abated by the examiners’ superiors.

For more information regarding Los Angeles financial services, consult a friendly Los Angeles tax preparer today!

Call your LA CPA (Velin & Associates, Inc.) at 424-274-1391 or visit our website for more details.

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