IRS Unveils New Audit Program
The tax audits are coming, the tax audits are coming!
The IRS is bringing back dreaded random audits as part of a new National
Research Program (NRP) study. This new study is expected to help the IRS
fine-tune the tools it uses to select individual taxpayers for closer
examination.
Ultimate Goal: The IRS hopes to close an estimated $345 billion “tax gap”
between the amount taxpayers pay and the amount that is actually owed.
The new NRP study will be the first of an
ongoing series of annual individual studies using a multiyear rolling
method. The study will focus on approximately 13,000 individual returns for
the 2006 tax year. Similar sample sizes will be used in the following tax
years.
According to IRS personnel, updated research on individual taxpayers is
needed because the patterns of noncompliance tend to change over a period of
time. The latest individual NRP study has been developed to examine samples
from individual taxpayers at varying income levels. The study will also
focus on the activities of farming operations and sole proprietors.
The majority of the taxpayers selected at random will have to justify
amounts on specific lines of their returns through an in-person examination
with an IRS staffer. However, certain individuals chosen for the study will
not be contacted if the IRS is able to obtain matching and third-party data
that will confirm the accuracy of the return.
Also, note that the IRS is in the final stages of a compliance research
project examining returns of S corporations. This research involves 5,000
returns filed for the 2003 and 2004 tax years. Because the income and
expense items for S corporations flow through to individual shareholders,
this study will provide more data relating to individual returns.
What should you do if you are contacted by the IRS? First things first: stay
calm. Then contact your
Somerset professional tax advisor for assistance.
Wherewithal
is provided by Somerset for our clients and other interested persons
upon request. Since technical information is presented in generalized
fashion, no final conclusion on these topics should be made without
further review. For additional information on the issues, please
contact
a member of the firm. Somerset provides total financial solutions,
including accounting, assurance, information solutions, litigation &
valuation, tax, wealth management and management consulting services to
entrepreneurs and their businesses. This document is not intended or
written to be used, and cannot be used, for the purpose of avoiding tax
penalties that may be imposed on the taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
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