Monday, August 19, 2013

IRS Expands Audit Resources

Sometimes events coincide and you have one of those "Ah ha" moments. Well, I had last week. Let's set the scene.

Recently the IRS launched an initiative against small business where the IRS questions if the small business has reported all of their income. The IRS sends out letters with the heading "Notification of Possible Income Under reporting."  It notifies the business owner "your gross receipts may be under reported" and says they must complete a form "to explain why the portion of your gross receipts from non-card payments appears unusually low." The Forbes article goes into more detail about the initiative, and the response from the business community.

This on the heels of a report that the IRS is using social media as a way to monitor the spending habits of suspected tax cheats.

Now the third leg of the stool - I spoke with a colleague recently who recounted how the Texas Comptroller's Office BART unit instigated a sales tax inquiry based on a document filed with a governmental agency several years ago. 

This is data mining to the extreme. While the Texas Comptroller is more limited than the IRS, they are apparently out front in examining all areas of the business universe to measure compliance and potential under reporting. 

Think of the tools the IRS has at its disposal and the potential for measuring compliance. And we thought the IRS matching program was a great idea. Is it far fetched to think that the IRS will ask you about the Coach purse you bought your wife and that she put on Facebook, but could not pay your tax debt? Are they going to know your total bank deposits to measure against reported income - before you file a return? The IRS has the ability to check and cross check your return before you even finish your return. 

Just a post script to the Texas Comptroller BART Unit. This is not the first time I've run across their capability. However, prior to the most recent event it was limited to documents and reports filed with a State of Texas agency. 

The net impact of this is that out of state companies buying a business must run down every potential connection with the State of Texas and include potential back taxes into any purchase. The words I recall from my client was that this was tantamount to a robbery. Hard to argue their sentiment. 
 
Have questions about your tax situations? Contact tax attorney Martin Cantu

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