In this second article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Planning Phase.

The Planning Phase determines the scope and issues of the transfer pricing examination. The TPEP states, “Issues selected for examination should have the broadest impact on achieving compliance regardless of the size or type of entity.” Important steps in the Planning Phase are: 1) the Initial Transfer Pricing Risk Assessment, 2) issuance of the Initial Transfer Pricing Information Document Request (IDR), 3) IRS internal planning meetings, 4) development of the exam plan, timelines and milestones, and 5) the opening conference, which is the final step of the Planning Phase and marks the transition to the Execution Phase.

Evolving Guidance
Read More

Monika Miles

On March 23, 2017, the IRS Large Business and International (LB&I) division announced the initial identification and selection of 13 “campaigns” to combat perceived tax compliance issues, with more campaigns to be identified and launched in coming months.

Read More

Last Tuesday, IRS Commissioner John Koskinen addressed the New York State bar Association Tax Section in New York. His comments provide keen insight into the going-on’s at the IRS. Mr. Koskinen’s most important announcement centered on the agency’s anticipated reduction in the number of rulemaking projects as a result of budgetary constraints.

Although releasing guidance is one of the agency’s core functions, there are simply not enough attorneys in the Office of Chief Counsel to shoulder the burden. Nor are there any plans on the horizon to hire more workers, in light of the agency-wide hiring freeze.

“Our office of chief counsel continues to make every effort to issue guidance in a timely Read More

iStock_tax on backXSmallToday, many states continue to face budget constraints and are increasing their audits of taxpayers to find tax liabilities to generate revenue.  One area that is often overlooked is the accrual of use tax on taxable purchases on which the vendor did not charge tax.  With many online retailers still not charging sales tax on taxable sales, this issue is particularly relevant.  The dire economic situation for many states is resulting in more use tax audits and more aggressive use tax audits.  Penalties are being assessed more aggressively for non-compliance with reporting and remitting use tax.  Additionally, subsequent audits of taxpayers where corrective actions weren’t taken are being assessed higher penalties or automatic penalties.

There are a number of ways that states are targeting companies for audits – some of which tend to focus on the sales tax side but will result in finding unregistered companies for all tax types.  Here are some of the most common audit lead methods used by the states:

–  Nexus inquiries – States identify unregistered taxpayers through an audit of one of your customers.  This is most often the case if you are providing a service in the state.  Since services are not taxable in many states, the service provider owes use tax on materials used in providing the service. In this case, you may receive a nexus inquiry letter from a state. Read More

Being selected for an IRS audit isn’t simply a matter of chance. Certain factors can make your tax return stand out from the rest.

Extra Help Online

To help you cut the risk of an audit, use a tax preparation service,

The IRS pays more attention to some returns than others, so it’s important to understand the factors that may elevate the likelihood that auditors take an interest in your situation.

If you’re audited, don’t be surprised if you have to make additional payments for invalid deductions or expenses. It’s easy to make mistakes, so be sure to keep all your documentation in case you get audited.

Here are eight potential red flags that could alert the IRS — and some survival tips if you come under scrutiny.

1. High incomes. According to a recent IRS report on its enforcement activity, your chance of being audited substantially increases once your income crosses $200,000.

2. Large itemized deductions. Deduct every penny you’re entitled to — but realize that if your itemized tax deductions are bigger than the IRS’ target range for people at your income level, your return may get a second look.

3. Home offices. You can only take a home office deduction if you meet all of the qualifications, including regularly and exclusively using part of your home as your principal place of business. For example, if your office doubles as the kids’ playroom, you’re generally unable to deduct it. For details, see IRS Publication 587.

4. Missing investment income. You know the IRS Form 1099 that financial services companies send you that summarizes your interest and dividends for the year? The IRS also gets that information. Make sure your return properly includes this information.

5. Incomplete returns. If your return is missing a few pieces, the IRS may wonder what else you forgot. Although you still must enter the correct information, a tax-preparation service that calculates figures you enter may help you avoid certain clerical errors that raise auditors’ eyebrows.

6. Business losses. In a tough economy, business losses are more common — but they’re still something the IRS likes to double-check. Make sure your expenses are legitimate and eligible to be deducted and that your business isn’t just a thinly disguised hobby.

7. Charitable deductions. You’ll need a canceled check or dated receipt for any cash contributions, and contributions of $250 or more require written acknowledgement from the charity. If you made a noncash contribution valued at more than $5,000, you’ll need an expert appraisal to back up your claim.

8. Medical expenses. For 2012, you can deduct these costs only to the extent they’re greater than 7.5% of your adjusted gross income, and it’s important to keep detailed records. Also remember you can’t deduct the cost of over-the-counter medicine, health club dues or most cosmetic surgeries. For 2013, the percent-of-AGI hurdle for those 64 and younger is climbing to 10%.

If you’re doubtful about the decisions you’re making when completing and filing your tax return, consider hiring a professional. Spending some money for expert guidance today could help you avoid paying increased taxes and penalties tomorrow.