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Form 1120-S CPA comments on IRS intent to Audit more S Corporations

Form 1120-S CPA S Corporation 2013

Our firm operates as a S Corporation, so you know I stay current on Form 1120-S issues. (910) 399-2705.

S Corporations CPAs expect to see more audits of Form 1120-S starting in 2013. The IRS announced it would increase S Corporation audits for a three-year period. According a report by Beyond 415, the IRS audited 18,519 S Corporations last year, of the 44.4 Million Form 1120-S(s) filed.

TIGTA (Tax Inspector General for Tax Administration) states that when discrepancies were found on a Form 1120-S tax audit, the average adjustment was $105,534. The IRS data book notes that the “no change” rate in S Corporation audits is 39%. The implication? The IRS intends to tighten up how it selects Form 1120-S(s) to audit.

I’m an S Corporation CPA that functions as an S Corporation. So here’s what I’d expect a Form 1120-S audit to concentrate on. Plus here’s a prior post on Form 1120-S tax audits.

  • Unreported Income. Even though Corporations don’t have to 1099 other Corporations, the IRS still collects Income data from Form 1099-K (credit card payments) and Form 1099-MISC from non corporate customers. Rumour has it that when they find large payments, to your S Corporation when they audit a customer, the IRS cross correlates that to your Form 1120-S.
  • S Corporation officer payroll. Here’s a earlier post on reasonable compensation for S Corporation officers. Shareholder employee wages have been a gray area for decades. Why? The IRS want you to pay employment taxes. Remember distributions from a S Corporation to a shareholder escape self employment tax. How much wage  is enough? It depends. We recommend documenting how the S Corporation established shareholder compensation and distributions in the Corporate minutes.
  • Miss-classification of employees as subcontractors. The IRS is currently running a “Special.” The New Voluntary Worker Classification Settlement Program allows S Corporations that are paying employees incorrectly as subcontractors (to save on employment and unemployment taxes) to come clean for a small penalty and a promise of future compliance. Worker classification is another gray area; the IRS lists 20 determination factors!
  • Shareholder basis for losses.

I’m an S Corporation CPA with a virtual office to provide your S Corporation service and convenience regardless of where you live. I offer a free phone consult (910) 399-2705.

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