Checklist: IRS Audit Risk Areas

March 2018 | Article

Without proper due diligence, business owners can find themselves in sticky situations. Compliance is important in every aspect of business, but it’s especially important to pay attention to the current issues that the IRS has in focus. The items below provide a checklist to help identify whether you, or your business, might be at risk for one—or more—of the IRS’ high probability audit situations for this year.

  • Do you make charitable gifts through a donor advised fund or conservation easement?
    IP monetization/royalty transactions, easements and donor advised fund transactions are under high IRS scrutiny.
  • Are you planning to change your compensation structure in light of tax reform law changes?
    The IRS position for reasonable compensation is reasonable replacement, which can complicate changes to wages, guaranteed partner payments or compensation from S corporations.
  • Do you have a transfer pricing policy in place, foreign assets or operations?
    International transactions are of special interest to the IRS. Returns not filed properly are subject to significant penalties, but requesting penalty relief and filing unfiled returns can alleviate potential penalties.
  • Do you have a captive insurance company?
    Recent U.S. Tax Court cases have emboldened IRS auditors to treat all 831(b) captives as shams.
  • Do you have more than $10 million in assets?
    High net worth individuals are easy targets for an IRS audit and probably will be audited.
  • Do you have a self-directed IRA?
    The IRS is examining SDIRAs to determine if they have violated the unrelated business income tax rules.
  • Have you recently completed a business or asset valuation or a study?
    The IRS will scrutinize the values determined in transactions, or require a contemporaneous study.

If you checked any of the above boxes, think you might be at risk for an audit or are currently being audited and need assistance, contact Ben Peeler of our IRS controversy and collections team at 801.456.5476 to discuss your situation.

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