This Might Be A Really Good Year To Make Sure Your Taxes Are Filed Accurately

In November, Accounting Today posted an article reporting that the Internal Revenue Service (IRS) plans to ramp up audits of smaller businesses and their investors by about 50 percent next year, following years of persistently low examination rates, an agency official said Tuesday.

The article reports:

“The IRS is focusing our efforts to increase compliance activity in this area of not only partnerships, but also investor returns related to pass-throughs,” De Lon Harris, the IRS deputy commissioner of examination for small businesses, said at an American Institute of Certified Public Accountants event. For 2021 “we are planning for 50 percent more than we had in the previous year.”

Pass-through entities, which include partnerships, limited-liability companies and sole-proprietorships, are incredibly difficult for the IRS to audit because they frequently have complex structures that can involve dozens of inter-related entities. Pass-throughs don’t pay taxes themselves, but “pass” along the profits and tax liabilities to investors — who then pay the taxes on their individual returns.

The article concludes:

The IRS is hiring 50 more specialized auditors to work these cases, with the aim of having them in place by February, Harris said. The IRS can select returns to audit that are up to three years old. If the agency finds significant problems in a taxpayer’s filings, the auditors can examine returns that are even older.

New audit procedures that Congress approved in 2015 mean that the IRS can more easily collect any underpaid taxes it finds during the audit. Instead of having to track down each investor, the IRS can now collect the money from the partnership itself.

File your taxes carefully!