IRS is on its way to see who’s been naughty and nice! IRS audits are up 11% & climbing!

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You better watch out, you better not cry,

You better not pout, I’m telling you why,

The IRS is coming to town.

He's making a list, and checking it twice, Gonna find out who’s naughty and nice,

The IRS is coming to town.

He sees you when you are cheating, he knows when forms are fake,

He knows if you’ve been bad or good, so be good for goodness sake!

I do hope my clients this year have been good.  Last year, many of them were…bad.  In fact, some of them were very, very bad.

The IRS Santa this year promises to be meaner and less forgiving, with all of the new internal revenue agents and officers hired over the past year.  The agency needs to justify the additional expense of the newly hired agents’ salaries and benefits.  And these eager agents and officers are eager to prove their worth, retain their jobs, and be rewarded.  So behave, girls and boys…better think twice before being naughty or nice.  After reading Circular 230, I’m concerned; perhaps you should be, too.

IRS audits were up 11% last year, increasing from 1.43 to 1.58 million, reaching its highest rate in the past decade.  That resulted in $57 billion in revenues, an increase of 18% over those of last year.  Although the IRS only audited a little more than 1% of all returns last year, it audited 8% of those with incomes over $1 million.  Of the 143 million returns filed, 389,000 showed incomes over $1 million.

Below is a portion of Santa IRS's checklist, which I obtained from a fellow elf.  It is not complete but includes the most obvious signs of naughtiness:

  1. Clients just submitting trial balances or just P&Ls.  Better get some bank statements and see if cash ties into those bank statements.
  2. Commingling of personal charges with business transactions.
    1. Watch those meals and entertainment charges.
    2. Double check those auto expense charges.
    3. Inspect those repairs and supplies accounts for capital expenditures.
    4. Beware of personal telephone charges.
    5. And scrutinize those nondescript office expenses, miscellaneous charges, etc.
  3. Determine if large deposits occurring in January may have been constructively received in December.
  4. Oh, God, the list is endless.  This elf is too tired and can't go on, suffering from low elf-esteem.  Sigh, old bloggers never die, they just get de-pressed.

Oh, well, time to renew my errors and omission insurance, revise that ten-page engagement letter for my tax clients, and even consider getting them witnessed and notarized.  And, better yet, maybe it's time to place a call to my attorney, too….Can't be too careful. 

What's that?! A sleigh?!  IRS Santa's on his way!

William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor

Accountants CPA Hartford, LLC

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