Tax & Business Alert
– April 2022
Word count target: ~ 270-290
Actual: 286 words
Abstract: Business owners who have been
audited by the IRS are likely aware that the process may be stressful. It might
help to understand what IRS auditors know about the business’s industry. IRS
examiners generally do research on a specific industry and on issues on a tax
return in preparation for an audit. While they have a variety of resources, one
tool they use to research specific industries is an
Audit Technique Guide.
What do IRS auditors know about your
business industry?
Has your business been audited by the IRS? It may be
stressful, especially if you don’t know what to expect. It might help to know
what information IRS auditors have about your industry. To prepare for an
audit, IRS examiners generally research a specific industry, plus issues on a
tax return. One tool they often use is the Audit Technique Guide (ATG).
A little-known secret
It’s not widely known, but the public can also access these same
guides on the IRS website. In other words, your business can use the guides to
gain insight into what the IRS is looking for in terms of compliance with tax
laws and regulations.
Many ATGs target specific industries or businesses, such as
construction, aerospace, architecture or veterinary
medicine. Other ATGs address issues that frequently arise in audits, such as
executive compensation, passive activity losses and capitalization of tangible
property.
IRS auditors examine many business types, plus individuals and
tax-exempt organizations. Each type of return might have unique industry
issues, business practices and terminology that auditors need to understand.
Using a specific ATG, an auditor may be able to reconcile discrepancies when
reported income or expenses aren’t consistent with industry norms,
or identify anomalies within the geographic area in which the business
is located.
Get a heads-up
Although
ATGs were created to help IRS examiners uncover common methods of hiding income
and inflating deductions, they also can help businesses ensure they aren’t
engaging in practices that could raise audit red flags. Some guides were
written several years ago and others are relatively
new, or recently revised or updated. Be aware, not every industry has a guide.
You can find a complete list of available ATGs on the IRS website:
https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs
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