Business owners who may be audited by the IRS are aware the process may be stressful. It would help to understand IRS auditors knowledge of the business’s industry. IRS examiners generally do research on a specific industry and on issues on a tax return in preparation for an audit. While they have a variety of resources, one tool they use to research specific industries is an Audit Technique Guide.
Has your business been audited by the IRS? It may be stressful, especially if you don’t know what to expect. It would be helpful for an auditor to understand knowledge of your industry. To prepare for an audit, IRS examiners generally research a specific industry, plus issues on a tax return. One tool they often use is the Audit Technique Guide (ATG).
A little-known secret
It’s not widely known, but the public can also access these same guides on the IRS website. Your business can use the guides to gain insight of the IRS search for items in terms of compliance with tax laws and regulations.
Many ATGs target specific industries or businesses, such as construction, aerospace, architecture, or veterinary medicine. Other ATGs address issues which frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.
IRS auditors examine many business types, plus individuals and tax-exempt organizations. Each type of return has a unique industry issue, business practices and terminology auditors need to understand. Using a specific ATG, an auditor can identify discrepancies of reported income or expenses which aren’t consistent with industry norms or identify anomalies within the geographic area in which the business is located.
Get a heads-up
Although ATGs were created to help IRS examiners uncover common methods of hiding income and inflating deductions, they also provide guidance to businesses to ensure they aren’t engaging in practices that could raise audit red flags. Some guides were written several years ago, and others are relatively new, or recently revised or updated. Be aware, not every industry has a guide.
You can find a complete list of available ATGs on the IRS website.
The HoganTaylor Tax Services
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax services, please contact Tony Otto, Lead Tax Partner. You may also contact Denise Felber, Tax Partner.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
