The National Association of Tax Professionals has provided us with some insight as to the upcoming activities of the Internal Revenue Service, based on the association’s recent meetings with various divisions of the Service.
The major news comes from the Small Business/Self-Employed Division of the IRS.
* Auditors from this Division will be concentrating more on payroll taxes in the coming year. A July Government Accountability Office (GAO) report indicated that 1.6 Million business owed $58 Billion in overdue payroll taxes as of September 30, 2007.
* There will be more audits of businesses than individuals. While the number of audits of individual taxpayers will decrease, reviews of corporations and Schedule Cs of high-income individuals will increase (I have always thought that the IRS should look more carefully at the Schedule Cs of low-income individuals). It has long been felt that a large part of the Tax Gap comes from the unreported income of Schedule C businesses.
* The issue of “worker classification” (i.e. employee with W-2 vs independent contractor with 1099) will continue to be a major area of investigation, which ties in with the Division’s emphasis on payroll taxes.
* The “National Research Program” (NPR) will continue. NATP reports, “The recent sampling of 5000 Sub-S returns revealed that IRS thinking about S Corps was not correct. The IRS learned that individuals are using S Corps to filter income. Therefore look for even more attention to be given to S Corps.”
* There will be increased activity in the Service’s efforts to get at sheltered offshore income. For the first time fraud technical agents are being especially trained in international taxation. The IRS will pay special attention to FBARs (not FUBARs – FBAR = Foreign Bank Account Reports) and the Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), imposing automatic penalties on late filed 5471s.
As the NATP does for me, I will keep you informed on future developments in this area as information becomes available.