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New IRS audit tactics could spell trouble for you or your business

Like many other federal agencies, the IRS has seen its budget slashed in recent years in response to the economic woes of the country. Because those budget cuts meant a corresponding cut in resources (and staff), the agency has been forced to find new ways of accomplishing one of its main purposes and corresponding sources of revenue: auditing tax returns to sniff out errors and potential fraud.

One of the main ways in which the IRS has handled the budget shortfalls is a paradigm shift in the way that audit targets are identified. In the past, for example, large corporations would be subject to "continuous" auditing, wherein an IRS agent would be assigned solely to one company's massive tax returns. Staff cuts mean that single agents no longer have the bandwidth to focus their attention like that, though.

Instead, the agency seems to be implementing a more "shotgun" approach, where they request massive amounts of data from businesses and individuals in the form of Information Document Requests, reviewing it with an eye toward uncovering potential abuses, mistakes, non-compliance or false reporting. The troubling thing for taxpayers regarding this and other audit campaigns is that the IRS hasn't made the subject or focus of them public. This means that there could be one campaign focused solely on payroll taxes, another focused on international transactions, and a third looking for improper credits.

There are things you can do to avoid undue IRS scrutiny and the potential for issues both in the present and in the future. These include:

  • Establishing clear, consistent policies and procedures regarding tax compliance
  • Paying your taxes on time (or requesting timely extensions)
  • Treating all interactions with the IRS as if they were "on the record"
  • Using quality tax professionals like attorneys and accountants whenever they are needed

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