The IRS is changing their auditing strategy with respect to business entities. In the past, they have focused most of their energy on auditing corporations but will be moving more toward auditing of S Corps and LLCs, where the money passes through to the individual who pays taxes on it.
Because of the level of complexity of some of these pass-through entities, the IRS believes they provide prime opportunities for fraudulent activities. Although these entities are a rapidly growing sector of the business community, very few audits of these types of entities have been performed in past years—approximately 0.5% in 2012. By comparison, 1.6% of corporations were audited in 2012 in spite of the fact that the IRS states that 95% of all businesses are now structured as pass-through entities.
If your business is an S Corp, LLC or other pass-through entity, be aware that the chances will be significantly higher in coming years that you will be selected for an audit.
Give us a call at Flemmer Associates if you receive a notice of audit. We’ll be happy to help you through it. 916-576-7050.