IRS Audits Targeting Businesses, Partnerships and Individuals Are on the Rise

The Internal Revenue Service (IRS) is leveraging its ability to conduct invasive audits to collect additional taxes, interest and penalties from both domestic and foreign U.S. taxpayers. This includes businesses, partnerships and high-income individuals. In this article, New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains common issues that can trigger IRS audits and highlights some of the risks involved.

Common Targets of IRS Audits

Numerous issues can trigger IRS audits targeting both entities and individuals. Ultimately, if revenue agents have any reason to believe that a taxpayer may have paid less than it owes, they can open an inquiry and pursue recovery of back taxes, interest and penalties. In some cases, the IRS selects audit targets at random as well, and random audits can also involve scrutiny of any and all forms of potential tax evasion and tax fraud.

With that said, certain issues tend to come up more frequently than others. Recently, we have seen the IRS prioritize cases involving:

• Claimed losses offsetting substantial income
• Underreported taxable income
• Undisclosed offshore accounts
• Improper business credits and deductions
• Improper personal credits and deductions
• Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) fraud
• Sophisticated tax avoidance schemes

We have also recently seen the IRS place particular emphasis on targeting taxpayers involved in certain industries and occupations. These include (but are not limited to):

• Cannabis
• Construction and real estate development
• Cryptocurrency
• Financial services
• Gaming and gambling
• Professional sports
• Technology

When facing an IRS audit, it is important to discern why, and it is also important to quickly discern the risks involved. Experienced tax counsel will be able to intervene in the audit process on your behalf, conduct a comprehensive (and attorney-client privileged risk assessment), and then provide strategic advice and representation tailored to the specific circumstances at hand.

Risks Involved in Facing an IRS Audit

For all taxpayers, facing an IRS audit poses substantial risks. Without effective legal representation, audit targets can find themselves facing financial consequences that they could—and should—have avoided. Some of the key risks associated with facing an IRS audit include:

• Liability for Back Taxes – The IRS can impose liability for the full amount it determines a taxpayer owes as a result of an audit.
• Interest on Back Taxes – Under federal law, interest on unpaid taxes begins accruing immediately.
• Penalties – The IRS has the authority to impose various penalties following audits, including failure-to-file and failure-to-pay penalties, among others.
• Levy and Seizure of Assets – If a taxpayer fails to pay the amount due following an audit, the IRS can seek to levy and seize the taxpayer’s assets.
• Other Means of Collection – Following audits, the IRS can pursue garnishment, charging orders and other means of collection as well.

Schedule a Confidential Consultation with New Jersey Tax Attorney Kevin E. Thorn

If you have concerns about the risks involved with facing an IRS audit in New Jersey, we encourage you to contact us promptly for more information. To schedule a confidential consultation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or contact us confidentially online today.