e Internal Revenue Service needs to strengthen its correspondence audit selection process by auditing more of the prior- and subsequent-year tax returns of noncompliant income tax filers, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, noted that the IRS relies heavily on the correspondence audit process to examine individuals who are suspected of underreporting their tax liabilities.

The correspondence audits often result in significant additional tax assessments, and the IRS has found audits conducted by correspondence to be more economical than other types of audits, such as face-to-face audits in IRS offices or out in the field meeting with taxpayers. Statistics indicate that in fiscal year 2012, the IRS conducted 1.1 million correspondence audits and recommended approximately $9.2 billion in additional taxes.

For its report, TIGTA set out to determine the effectiveness of the filing checks made during the correspondence audit process in the IRS’s Small Business/Self-Employed Division. Filing checks are used, in part, by the SB/SE Division to determine whether the same pattern of noncompliance identified on an audited tax return is present on the prior- and subsequent-year tax returns, and if those tax returns also warrant an audit. When they are properly completed, filing checks enable the IRS to better leverage its auditing resources by increasing the overall compliance coverage of every audit.

TIGTA evaluated a statistical sample of 102 out of 7,470 single-year correspondence audits in which the taxpayers involved agreed that they understated their tax liabilities by at least $4,000. Similar tax issues also existed on the prior- and/or subsequent-year tax returns for 43 of the 102 taxpayers. TIGTA found that 32 of the 43 individuals did not have those tax returns audited and, as a result, may have avoided additional assessments ranging from $2,343 to $18,874.

TIGTA pointed out in its report that one factor that may have contributed to the limited number of prior- and/or subsequent-year tax audits in the sample it examined is the emphasis the IRS places on keeping its audit inventories free of older tax years so there is enough time to complete audits and assess any resulting taxes within the three-year statute of limitations for assessments. There are also some control issues involving how current-year audit results are used to decide whether to audit any prior- and subsequent-year tax returns.

TIGTA recommended that the IRS develop and implement procedures that instruct its auditors how they should use current-year correspondence audit results when deciding whether the prior- or subsequent-year tax returns also warrant an audit. To ensure that the instructions are followed, TIGTA also recommended that the procedures should include instructions for monitoring how well current-year correspondence audit results are used in deciding to audit prior- and/or subsequent-year tax returns.

The IRS agreed with TIGTA’s recommendation and plans to develop an Internal Revenue Manual section to address the case selection and delivery process, in addition to the duties and roles of IRS analysts and examiners.

CLICK ON THIS LINE TO READ THE FULL ARTICLE

Some families may end up owing Uncle Sam a sizable refund if they accept government help on buying health insurance next year under President Obama’s Affordable Care Act.

This week, our Monday Map draws data from our interactive State Migration Calculator, and illustrates the interstate movement of income over the past decade (from 2000 to 2010). When a person moves to a new state, their income is added to the total of all other incomes in that state. This positively affects the total taxable income in his or her new state, and negatively affects the income in the state he or she left.

All maps and other graphics may be published and re-posted with credit to the Tax Foundation.

CLICK ON THIS LINE TO SEE THE MAP

• Review wage withholding and estimated taxes. You may be able to reduce withholding and increase your take-home pay because of deducting mortgage interest and real estate taxes if you haven’t been deducting these items before (i.e., this is your first home).
• Decide whether to make energy improvements. You may qualify for a tax credit of up to $500 for adding insulation and other energy-saving items to your home.
• Keep track of expenses related to a home office if you use part of your home for business. You can deduct your actual expenses or use an IRS simplified method for figuring the home office deduction.
• Begin a record of home improvements. These add to the basis of your home and reduce the amount of gain when you eventually sell.
• Notify the IRS of your new address. This is one using Form 8822.

This article is from www.jklasser.com

Business owners and their advisers often fail to recognize how perilous S corporations can be.  The Sixth Circuit decision in the case of Robert and Kimberly Broz upholding an $18 million deficiency for the years 1996 to 2001 provides some useful lessons.

Journal Entries Are Not All They Are Cracked Up To Be

The lesson for business owners is that it is a very bad idea to use multiple entities without respecting the implications of each entity.  Don’t rely on your accountant to straighten every thing out with journal entries.  I spent much of the early part of my career making journal entries to move tax effects around among multiple related entities.  For the last decade or so, I have at least looked at every federal tax decision and have reached a painful conclusion.  The only people who think accountant’s journal entries mean anything are other accountants.  Listen to the Sixth Circuit:

 CLICK ON THIS LINE TO READ THE FULL ARTICLE

Small business owners who thought they were off the hook for ObamaCare regulations until 2015 may be in for an expensive wake-up call next month.

Beginning Oct. 1, any business with at least one employee and $500,000 in annual revenue must notify all employees by letter about the Affordable Care Act’s health-care exchanges, or face up to a $100-per-day fine. The requirement applies to any business regulated under the Fair Labor Standards Act, regardless of size. Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.

Earlier this summer, the employer mandate, which states that every business with at least 50 or more full-time employees must offer workers acceptable coverage or face a $2,000 penalty per-worker, per-year, was pushed back until 2015. But the Oct. 1 employee-notification deadline stands. Keith McMurdy, partner at FOX Rothschild LLP, says the $100 per-day fine has been “unfortunately overlooked” by many small businesses, and the dollar amount on the penalty comes from the general per-day penalty under the ACA.

“The PPACA has a general $100-a-day penalty for non-compliance. Since this requirement is in the FLSA there are also penalties there. So the general consensus is that some penalty applies and probably the general provision,” McMurdy tells FOXBusiness.com.
CLICK ON THIS LINE TO READ THE FULL ARTICLE