Small business owners (SBO) will be under more scrunity now that the IRS has increased their enforcement efforts in an attempt to close the tax gap. What this means is that audits for SBO's are on the rise. One way to ensure that you are not caught in an audit. is to take a proactive approach to your tax situation and not a reactive one.
Here is a taxpayer that took a reactive approach to her tax situation and the outcome of their dealing with the IRS (this may hit home for the real estate professionals out there). You can read the entire court case here or get the quick recap below. Enjoy.
The Tech Accountant
Showing posts with label Auditing. Show all posts
Showing posts with label Auditing. Show all posts
Sunday, August 21, 2011
Thursday, August 18, 2011
Washington Changes Challenge the IRS
Challenges are currently occurring at the IRS. No I am not referring to the time it takes for taxpayers to get assistance from the IRS or even the TAS (Taxpayer Advocate Service). I am talking about the problems the IRS is having with implementing many of the new tax law changes that have been enacted in recent legislation.
I had a chance to review a report from the Treasury Inspector General for Tax Administration and there are currently about 100 new tax provisions that the IRS will have to implement.
Did you know that the IRS is currently dealing with one of the largest tax law changes in the past 20 years? With all the changes on the horizon, the IRS has increased their collection and enforcement personnel (one would think that IRS would increase their efforts to implement the tax changes) and not in enforcement.
What does this mean? Basically that IRS is increasing their collection and enforcement efforts on taxpayers and small businesses (the number of tax returns examined increased for individual, corporate and S-Corps over the past 5 years). Bottom line, the IRS is getting tough on the taxpayer.
The best thing for taxpayers to do is to take a proactive approach to their tax planning and know what to expect in the future. Many of the tax changes can swing in favor of taxpayers and small business owners so now is the time to start thinking about tax savings and not getting caught in any IRS traps.
The Tech Accountant
I had a chance to review a report from the Treasury Inspector General for Tax Administration and there are currently about 100 new tax provisions that the IRS will have to implement.
Did you know that the IRS is currently dealing with one of the largest tax law changes in the past 20 years? With all the changes on the horizon, the IRS has increased their collection and enforcement personnel (one would think that IRS would increase their efforts to implement the tax changes) and not in enforcement.
What does this mean? Basically that IRS is increasing their collection and enforcement efforts on taxpayers and small businesses (the number of tax returns examined increased for individual, corporate and S-Corps over the past 5 years). Bottom line, the IRS is getting tough on the taxpayer.
The best thing for taxpayers to do is to take a proactive approach to their tax planning and know what to expect in the future. Many of the tax changes can swing in favor of taxpayers and small business owners so now is the time to start thinking about tax savings and not getting caught in any IRS traps.
The Tech Accountant
Friday, June 17, 2011
DOL Timesheet App for iPhone
Travelers RMplusonline
Good ole Uncle Sam is at it again.
There's a new app for the iPhone that many small biz owners may not be to thrilled about. The DOL has recently released an iPhone app that will allow hourly employees to track their own hours to ensure that they are paid the correct amount. This may open up a can of worms for many small biz owners who may not have accurate employment records and may also increase the amount of fraudulent wage compliants filed with the DOL.
Take a look at the article and let me know your thoughts about this new app. Also if you have an iPhone, iPod touch, or iPad be sure to download the app and try it out for yourself and let us know what you think of it.
The Tech Accountant
Good ole Uncle Sam is at it again.
There's a new app for the iPhone that many small biz owners may not be to thrilled about. The DOL has recently released an iPhone app that will allow hourly employees to track their own hours to ensure that they are paid the correct amount. This may open up a can of worms for many small biz owners who may not have accurate employment records and may also increase the amount of fraudulent wage compliants filed with the DOL.
Take a look at the article and let me know your thoughts about this new app. Also if you have an iPhone, iPod touch, or iPad be sure to download the app and try it out for yourself and let us know what you think of it.
The Tech Accountant
Thursday, May 26, 2011
9 Factors to Legitimize Your Biz
Recently I was privileged to speak at the Atlanta Professional Business Network (APBN) event celebrating National Small Business Week and the topic was how entrepreneurs can legitimize their businesses and minimize the chances of an IRS audit. We went over quite a bit of material that evening, but here are the major points:
According to the IRS, whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying nine non-exclusive factors contained in Treas. Reg. § 1.183-2(b). Those factors are:
1. the manner in which the taxpayer carried on the activity,
2. the expertise of the taxpayer or his or her advisers,
3. the time and effort expended by the taxpayer in carrying on the activity,
4. the expectation that the assets used in the activity may appreciate in value,
5. the success of the taxpayer in carrying on other similar or dissimilar activities,
6. the taxpayer's history of income or loss with respect to the activity,
7. the amount of occasional profits, if any, which are earned,
8. the financial status of the taxpayer, and
9. elements of personal pleasure or recreation.
No one factor controls, other factors may be considered, and the mere fact that the number of factors indicating the lack of a profit objective exceeds the number indicating the presence of a profit objective (or vice versa) is not conclusive. A profit objective in an earlier year does not automatically provide a taxpayer a blank check with regard to losses incurred in later years.
The bottom line for small business owners is to keep good records, operate in a businesslike manner and have a profit motive as your goal.
The Tech Accountant
According to the IRS, whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying nine non-exclusive factors contained in Treas. Reg. § 1.183-2(b). Those factors are:
1. the manner in which the taxpayer carried on the activity,
2. the expertise of the taxpayer or his or her advisers,
3. the time and effort expended by the taxpayer in carrying on the activity,
4. the expectation that the assets used in the activity may appreciate in value,
5. the success of the taxpayer in carrying on other similar or dissimilar activities,
6. the taxpayer's history of income or loss with respect to the activity,
7. the amount of occasional profits, if any, which are earned,
8. the financial status of the taxpayer, and
9. elements of personal pleasure or recreation.
No one factor controls, other factors may be considered, and the mere fact that the number of factors indicating the lack of a profit objective exceeds the number indicating the presence of a profit objective (or vice versa) is not conclusive. A profit objective in an earlier year does not automatically provide a taxpayer a blank check with regard to losses incurred in later years.
The bottom line for small business owners is to keep good records, operate in a businesslike manner and have a profit motive as your goal.
The Tech Accountant
Tuesday, March 22, 2011
5 Taxpayers the IRS is Targeting
There was a great deal of news that occurred over this past weekend but one of the more important stories was probably the deal between AT&T and T-Mobile to merge pending government approval. This will make AT&T the largest mobile provider and will affect a great deal of customers. There is however a little bit of other news that many tax payers may want to know regarding a new list out from the IRS.
According to the IRS, they are targeting specific groups of taxpayers for audits this year and taxpayers need to ensure that their return will not be flag by the IRS’s “Discriminant Function”. The 5 areas where the IRS is putting more focus is:
1. Schedule A Filers – Those that itemized their deductions
2. Schedule C – Those solo entrepreneurs that are not corporations
3. Schedule E – Those that own rental properties
4. Cash Basis Businesses – Those businesses that only use cash and not credit
5. Sales of Assets and other investments – Those taxpayers that have investments or assets for investments
What’s a taxpayer to do to ensure that their return is not flagged by the IRS? The most important factor is keeping good records that proved your deductions or credits are valid and that you qualify for them. Keeping good records can also help if your tax return is selected for an audit. Audits go a bit more smoothly when your paperwork is organized and typically result is no change or maybe even a little more money back for you.
The Tech Accountant
According to the IRS, they are targeting specific groups of taxpayers for audits this year and taxpayers need to ensure that their return will not be flag by the IRS’s “Discriminant Function”. The 5 areas where the IRS is putting more focus is:
1. Schedule A Filers – Those that itemized their deductions
2. Schedule C – Those solo entrepreneurs that are not corporations
3. Schedule E – Those that own rental properties
4. Cash Basis Businesses – Those businesses that only use cash and not credit
5. Sales of Assets and other investments – Those taxpayers that have investments or assets for investments
What’s a taxpayer to do to ensure that their return is not flagged by the IRS? The most important factor is keeping good records that proved your deductions or credits are valid and that you qualify for them. Keeping good records can also help if your tax return is selected for an audit. Audits go a bit more smoothly when your paperwork is organized and typically result is no change or maybe even a little more money back for you.
The Tech Accountant
Wednesday, November 17, 2010
Cloud Accounting for Small Biz's
Just in time to get small business owners ready for the new year and tax season, cloud accounting vendor Outright has partnered with Google and Shoeboxed.com to offer small business owners an easier way to integrate back office admin functions with their accounting product. Be sure to watch the video below and see how using cloud products can save you money, increase productivity, and focus on growing your business.
The Outright product is mainly geared toward sole proprietors (Schedule C)....sorry for everyone else, but there are cloud options available for you too.
The Tech Accountant
The Outright product is mainly geared toward sole proprietors (Schedule C)....sorry for everyone else, but there are cloud options available for you too.
The Tech Accountant
Monday, July 26, 2010
Tax Tools for Tech Savvy Accountants
Are you an accountant that ever needed access to tax code while at a client's office for research? Have you ever been in the middle of a tax audit and needed access to the tax code and regulations to support your position? Here's a quick video that will provide tech accountants and tech savvy taxpayers with a solution.
The Tech Accountant
The Tech Accountant
Sunday, June 27, 2010
QuickBooks Helping IRS Audit Your Books?
The IRS and Intuit are joining forces to make it easier to audit your small businesses. This information was provided from a recent liaison meeting. Does this allow auditors the ability to review QB data that is NOT within the audit scope allowing the audit to be expanded? Let me know your thoughts.
ISSUE:
I was informed yesterday by a Revenue Agent that a national directive has been issued to all Revenue Agents to obtain a copy of the QuickBooks file for any taxpayer being audited who uses QuickBooks. Apparently each audit group has one license from Intuit.
What I plan to do is to use the utility feature to condense prior years so that no detail can be accessed. My audit is for 2008, but obviously other periods can be opened if they want. Hopefully this is not their intention....I have asked for a copy of the directive.
My main concern is the cost of audit representation for our clients if the IRS goes crazy with this. I would love to get your thoughts on this.
RESPONSE:
There have been some substantial changes in the last six to twelve months regarding the issues raised. The IRS has purchased 1500 to 2000 licenses from Intuit and will have one agent trained and licensed per group to assist others in the examination of taxpayers who use QuickBooks. Agents are instructed to obtain a copy of the taxpayer's data base for the year under examination only when it is necessary. This examination tool will not be used in all cases - it is the judgment of the examiner.
IRS has found that many taxpayers do not save hard copies of their records or the copies they have are incomplete. The Service also found that taxpayers reuse an old version and over write the prior year. The examiner may request the data base to verify the integrity of the internal controls. A definite problem could arise where a client thinks they have turned off the internal audit feature to avoid tracking of adjusting entries but the program does not totally delete these items.
If the qualified representative (power of attorney) considers the Revenue Agent's request for the data base as totally unnecessary, he/she should speak to the agent's group manager. If the taxpayer/representative refuses to provide the data base and the revenue agent/manager determines it necessary, a Summons to obtain the information would be issued.
I spoke with our SB/SE national Technical Advisor for electronic records in our Exam Special Processes unit regarding the issue stated below. The Revenue Agent referenced in the question may have been referring to a memo issued by Monica Baker, the Examination Director, in late April announcing the implementation of the QuickBooks software availability to Revenue Agents. However, there is no written directive that has been issued instructing Revenue Agents to request the electronic data file in every instance where the taxpayer uses QuickBooks or other electronic records.
While Rev Proc 98-25 provides the authority for the IRS to request electronic records, in most cases (with exceptions), the Service will generally request the data file if some sort of electronic system was used. It is indeed up to the agent's and manager's judgment at the group level to make the request.
Although the data file generally retains information from the date of initial input to the date of backup which could obviously include multiple years in addition to the actual audit year, agents are instructed to look at the information only for the year under exam. If there is a decision to expand the examination to prior/subsequent years, then information for those years could be reviewed. As mentioned, using the cleanup utility condenses prior year information into a summary, rather than a detailed, format.
As the software finds its way into RA groups and more agents are trained in its use, we could definitely be seeing a trend in the way exams are conducted since so many small businesses use QuickBooks.
Gerry Kelly-Brenner
ID #94-06950
Senior Stakeholder Liaison Specialist
SBSE Communications, Liaison & Disclosure
Internal Revenue Service
1301 Clay Street, Suite 1090S
Oakland, CA 94612
The Tech Accountant
ISSUE:
I was informed yesterday by a Revenue Agent that a national directive has been issued to all Revenue Agents to obtain a copy of the QuickBooks file for any taxpayer being audited who uses QuickBooks. Apparently each audit group has one license from Intuit.
What I plan to do is to use the utility feature to condense prior years so that no detail can be accessed. My audit is for 2008, but obviously other periods can be opened if they want. Hopefully this is not their intention....I have asked for a copy of the directive.
My main concern is the cost of audit representation for our clients if the IRS goes crazy with this. I would love to get your thoughts on this.
RESPONSE:
There have been some substantial changes in the last six to twelve months regarding the issues raised. The IRS has purchased 1500 to 2000 licenses from Intuit and will have one agent trained and licensed per group to assist others in the examination of taxpayers who use QuickBooks. Agents are instructed to obtain a copy of the taxpayer's data base for the year under examination only when it is necessary. This examination tool will not be used in all cases - it is the judgment of the examiner.
IRS has found that many taxpayers do not save hard copies of their records or the copies they have are incomplete. The Service also found that taxpayers reuse an old version and over write the prior year. The examiner may request the data base to verify the integrity of the internal controls. A definite problem could arise where a client thinks they have turned off the internal audit feature to avoid tracking of adjusting entries but the program does not totally delete these items.
If the qualified representative (power of attorney) considers the Revenue Agent's request for the data base as totally unnecessary, he/she should speak to the agent's group manager. If the taxpayer/representative refuses to provide the data base and the revenue agent/manager determines it necessary, a Summons to obtain the information would be issued.
I spoke with our SB/SE national Technical Advisor for electronic records in our Exam Special Processes unit regarding the issue stated below. The Revenue Agent referenced in the question may have been referring to a memo issued by Monica Baker, the Examination Director, in late April announcing the implementation of the QuickBooks software availability to Revenue Agents. However, there is no written directive that has been issued instructing Revenue Agents to request the electronic data file in every instance where the taxpayer uses QuickBooks or other electronic records.
While Rev Proc 98-25 provides the authority for the IRS to request electronic records, in most cases (with exceptions), the Service will generally request the data file if some sort of electronic system was used. It is indeed up to the agent's and manager's judgment at the group level to make the request.
Although the data file generally retains information from the date of initial input to the date of backup which could obviously include multiple years in addition to the actual audit year, agents are instructed to look at the information only for the year under exam. If there is a decision to expand the examination to prior/subsequent years, then information for those years could be reviewed. As mentioned, using the cleanup utility condenses prior year information into a summary, rather than a detailed, format.
As the software finds its way into RA groups and more agents are trained in its use, we could definitely be seeing a trend in the way exams are conducted since so many small businesses use QuickBooks.
Gerry Kelly-Brenner
ID #94-06950
Senior Stakeholder Liaison Specialist
SBSE Communications, Liaison & Disclosure
Internal Revenue Service
1301 Clay Street, Suite 1090S
Oakland, CA 94612
The Tech Accountant
Subscribe to:
Comments (Atom)