An IRS compliance initiative focuses on at least 60 industries, which can expect tax audits.
Here's the good news: the IRS has lifted the veil of secrecy off its guidelines about how and when it audits the tax returns of certain types of companies. Now for the bad news: if you're in an industry whose audit guidelines have been -- or are due to be -- published by the IRS, your chances of being "hit" have just increased dramatically.
To date, seven sectors have been earmarked for extra attention:
gas retailers law firms
bed-and-breakfast inns mortuaries
air-charter companies taxi services
Twenty-five others also have been targeted, including travel agencies, garment manufacturers, and health-care companies. "The IRS says it will focus on about 60 segments," notes Cornelius Coleman, a director of national tax service at Coopers & Lybrand in New York City and former IRS regional commissioner for the North Atlantic region. But he predicts that 100 to 125 industries will be covered.
It's all due to an initiative known as the Market Segment Specialization Program, yet another effort by the IRS to improve taxpayer-compliance rates. "First the agency will publish guidelines that make it very clear what revenue agents will look for during tax audits of certain industries," explains Coleman.
Then comes the bombshell: more compliance personnel (translation: auditors) will be assigned to the targeted industries. "In the short term," says Coleman, "more audits are inevitable in these industries."
What's the bottom line for entrepreneurs whose businesses are about to come under the IRS's microscope? They should scrutinize the new guidelines and follow them to the letter. If the guidelines show that your business is vulnerable to a major audit of a previous year's tax return, consider filing an amendment.