Those who own S-corporations (the most common legal form of privately owned businesses) be warned. Inc.com reports that "Internal Revenue Service officials announced on Monday that the organization will examine 5,000 randomly selected S corporation returns from the tax years 2003 and 2004 as part of a new study to determine the reporting compliance of the business entities."
The IRS tells you to have no fear, since this they are not looking for criminal behavior. However, ther are looking for non-compliance, which can become quite an expensive mess to untangle for many small business owners. The IRS case law is complex and often ambiguous, which means that hours and hours of CPA and legal time may need to be used to come back into "compliance."
From Inc.com:
"For those companies that happen to win this lottery, this will be a real thorn in their side," said attorney Richard Colombik of Tax Law Solutions based in Schaumburg, Ill. "Statistical audits tend to be much more in depth: They take more time to collect the data, and for those companies that choose to hire representation, they probably will be more costly," he added. In response, Friedland said "the audits in this study will be very similar to a standard exam, neither more or less intensive."
Given past IRS behavior, LLCs and partnerships will be next in their "compliance examiniation" cross-hairs.
