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Small Businesses May Be Subject to IRS Robo-Audits

Author: Frank L. Brunetti|June 17, 2013

Small Businesses May Be Subject to IRS Robo-Audits

The Internal Revenue Service is leaning more heavily on technology to help detect potential tax law violations, and this trend is expected to continue as it faces limited manpower to execute compliance protocols and audits.

Historically, the IRS has used so-called “robo-audits” to monitor inconsistencies in the tax returns of middle-income Americans. However, a recent $3 billion technology upgrade to the tax agency’s reporting infrastructure may enable it to move beyond individuals and incorporate small businesses into the system, a new analysis suggests.

U.S. News and World Report notes that the agency uses the tax reporting system to conduct random auditing of returns, namely on the returns of low- or middle-income individuals whose returns have been frozen. However, as the IRS focuses more on compliance, it may include small businesses in robo-auditing in an effort to better detect potential violations and recoup back taxes, penalties, and fees to close the tax gap.

“The IRS is now processing tax returns by checking them against data from third-party records of all credit-card and electronic-payment data providers,” the news source wrote. “It is also using data from social media, email and other online activities. The IRS’s own advisory boards have warned that the agency is not prepared for this step, and many problems will likely arise.”

Despite these potential issues, the agency may continue to explore all of its options, particularly as it focuses the bulk of it’s 2014 budget on compliance.

In a recent budgetary proposal submitted to the Treasury Inspector General for Tax Administration (TIGTA), the agency requested an additional $1 billion from it’s 2012 budget to increase staffing and bolster its enforcement. According to the breakdown, the agency wants to increase its enforcement by 6.93 percent, and its operations support by 13.51 percent. The IRS also indicated it hopes to improve individual and small business tax compliance by increasing its taxpayer services by 7.72 percent.

Small Businesses May Be Subject to IRS Robo-Audits

Author: Frank L. Brunetti

The Internal Revenue Service is leaning more heavily on technology to help detect potential tax law violations, and this trend is expected to continue as it faces limited manpower to execute compliance protocols and audits.

Historically, the IRS has used so-called “robo-audits” to monitor inconsistencies in the tax returns of middle-income Americans. However, a recent $3 billion technology upgrade to the tax agency’s reporting infrastructure may enable it to move beyond individuals and incorporate small businesses into the system, a new analysis suggests.

U.S. News and World Report notes that the agency uses the tax reporting system to conduct random auditing of returns, namely on the returns of low- or middle-income individuals whose returns have been frozen. However, as the IRS focuses more on compliance, it may include small businesses in robo-auditing in an effort to better detect potential violations and recoup back taxes, penalties, and fees to close the tax gap.

“The IRS is now processing tax returns by checking them against data from third-party records of all credit-card and electronic-payment data providers,” the news source wrote. “It is also using data from social media, email and other online activities. The IRS’s own advisory boards have warned that the agency is not prepared for this step, and many problems will likely arise.”

Despite these potential issues, the agency may continue to explore all of its options, particularly as it focuses the bulk of it’s 2014 budget on compliance.

In a recent budgetary proposal submitted to the Treasury Inspector General for Tax Administration (TIGTA), the agency requested an additional $1 billion from it’s 2012 budget to increase staffing and bolster its enforcement. According to the breakdown, the agency wants to increase its enforcement by 6.93 percent, and its operations support by 13.51 percent. The IRS also indicated it hopes to improve individual and small business tax compliance by increasing its taxpayer services by 7.72 percent.

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