IRS Examiners to Focus on Businesses, Abusive Promoters

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Nov. 3 — The Internal Revenue Service will prioritize examining corporations, promoters of abusive tax schemes and individuals who have the potential to be significantly noncompliant during fiscal year 2016, an agency official said.

The Small Business/Self-Employed Division, where Examination is housed, is shifting its focus to C corporations, S corporations and partnerships, said Shenita Hicks, who directs Examination. Her unit is “attempting to evaluate and identify processes to address the business filing taxpayer,” she said Nov. 3 at an American Institute of CPAs tax conference.

The IRS has conducted fewer audits across nearly every category of taxpayers as the agency has received reduced levels of funding in the past five years. Commissioner John Koskinen has said the declining funding levels from Congress are directly tied to a 30 percent decrease in audit revenues, a problem he predicts will worsen in the coming years if the agency doesn't receive additional funding (see related story in this issue).

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“That's not to say we won't have a presence in the 1040 arena, because we still will,” Hicks said, referring to Form 1040, U.S. Individual Income Tax Return.

The SB/SE Division is working with a “lead development center” to identify some of the most egregious promoters of abusive tax schemes. This center is able to gather information from multiple sources to select those who will undergo exam, she said. The agency is also using data and algorithms compiled from a variety of tools to identify individual taxpayers who are severely noncompliant.

The IRS is also beginning to prepare examiners for a new partnership audit regime that will increase the number of entities audited and how adjustments are collected.

The Service is educating examiners about how to identify and address partnership issues, Hicks said. There are also training efforts on how to deal with fraudulent tax return preparers.

Budget legislation (H.R. 1314) signed by President Barack Obama Nov. 2 simplifies the procedures for the IRS to audit and collect adjustments from complex partnerships, which historically have been audited at a much lower rate than similarly sized C corporations (211 DTR G-2, 11/2/15).

To contact the reporter on this story: Laura Davison in Washington at ldavison@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com