Tax Tip of the Week
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For the week of
May 3, 1999
Who are the most likely IRS audit candidates?
When one files an income tax return, it would be nice to know that an audit is not in store.
Who are the most likely candidates for an IRS audit and what is the IRS looking for?
Tax returns that contain a Schedule C (business income and deductions) are high on the list of IRS audits. Such tax returns are several times more likely to be examined by the IRS because they are more likely to result in additional tax revenue.
The IRS will compare total bank deposits made by the business with the sales reported on Schedule C.
They are also looking for personal expenses written off as business deductions, such as family travel, automobile usage, insurance premiums, and telephone expenses. They want to determine that employees haven't been misclassified as independent contractors to avoid payroll taxes. And they will also check to see that long-term assets are not being treated as current expenses, except to the extent permitted.
A good set of records and a properly prepared tax return are the best ways to help avoid an audit. If you have kept your records and prepared your tax return in good conscience, you should have little to fear from an audit of your tax return.
If you are contacted by the IRS for additional information or an audit, please give us a call; we are here to help you.
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