repost­ed with per­mis­sion from findlaw.com. To read the orig­i­nal blog please click here.

by: Andrew Lu
Novem­ber 2, 2012

The IRS announced sev­er­al areas it is focus­ing on for audits of small busi­ness­es.

The announce­ment comes as the IRS said it is increas­ing its over­sight of small busi­ness­es and the report­ing of tax­es. The IRS believes that small busi­ness­es rou­tine­ly under-report, and that this under-report­ing is respon­si­ble for 84% of the $450 bil­lion tax gap, reports the Exam­in­er.

Below are sev­en areas the IRS is tar­get­ing, as com­piled by the Exam­in­er:

  1. Fringe ben­e­fits. The IRS believes that employ­ers are not report­ing employ­ee fringe ben­e­fits like per­son­al use of com­pa­ny vehi­cles.
  2. High income tax­pay­ers. The IRS will focus on tax­pay­ers with a total pos­i­tive income of more than $1 mil­lion. Last year, the IRS audit­ed 12.5% of all indi­vid­u­als with incomes of more than $1 mil­lion, reports the Exam­in­er.
  3. Small busi­ness employ­ee health insur­ance cred­it. This cred­it was first made avail­able in 2010 and is now com­ing under IRS scruti­ny. The IRS will look for com­pli­ance with eli­gi­bil­i­ty require­ments.
  4. Inter­na­tion­al trans­ac­tions. The IRS will focus on the inter­na­tion­al tax gap, indi­vid­u­als who hide assets over­seas, and off­shore trans­ac­tions for large and small busi­ness­es.
  5. S cor­po­ra­tions. The focus will be on deduct­ing loss­es from S cor­po­ra­tions and the use of S cor­po­ra­tion dis­tri­b­u­tions to avoid pay­ment of Social Secu­ri­ty tax­es.
  6. Work­er reclas­si­fi­ca­tion. Busi­ness­es may have an incen­tive to mis­clas­si­fy work­ers as inde­pen­dent con­trac­tors rather than employ­ees, and the IRS believes that there is sig­nif­i­cant non­com­pli­ance in this area, reports the Exam­in­er.
  7. Part­ner­ships. This is a new area the IRS is tar­get­ing and the agency may take a look at large loss part­ner­ships.

You may want to talk to a tax attor­ney to ensure that you stay in com­pli­ance with the law. Small busi­ness tax­es and audits can be com­pli­cat­ed and stress­ful, and a lawyer can ensure that you have noth­ing to wor­ry about.