5 Reasons Why the IRS's New Fraud Enforcement Office Might Audit Your Small Business

The IRS’s recently announced the formation of a new Fraud Enforcement Office housed within its Small Business/Self Employed Division. This new office will be specifically targeting tax fraud perpetrated by small businesses, and the Small Business/Self Employed Division’s Commissioner has stated that the Division will be enhancing its fraud enforcement efforts in 2020.

For small business owners in New Jersey, this means that the risk of facing an audit is greater than ever. Here, tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains five reasons why small businesses may have cause for concern:

1. You Haven’t Filed Your Small Business’s Quarterly or Annual Returns

Failing to file your small business’s quarterly or annual tax returns is one of the surest ways to face an IRS audit. For small businesses in particular, the creation of the IRS’s new Fraud Enforcement Office means that the risks of not filing are greater than ever.

2. Your Small Business Owes the IRS

If your small business owes tax to the IRS, this too will increase your business’s audit risk substantially. The Small Business/Self Employed Division targets both underreporting and underpayment; and, with regard to underpayment, companies can face audits because both:

• They pay less tax than they report on their returns, and
• The IRS determines that they have underreported their federal income tax liability.

3. Your Small Business’s Books Aren’t Current (and Accurate)

Failing to maintain up-to-date books and records can lead to reporting issues that are likely to trigger scrutiny from the IRS’s new Fraud Enforcement Office. Inaccuracies and mistakes (such as falsely claiming deductions or misclassifying income) can also raise red flags that increase a small business’s risk of being audited.

4. You Have Provided Inaccurate or Incomplete Information to Your Small Business’s Accountant

Tax preparers can only rely on the information they are provided. If you have provided inaccurate or incomplete information to your small business’s accountant, then there is a good chance that your small business’s federal tax returns are inaccurate or incomplete as well. As a business owner, you are ultimately responsible for ensuring the accuracy of your business’s returns.

5. Your Business Engages in Activities that Are Considered “Red Flags” for Tax Fraud

In addition to accounting and filing errors, there are various other acts and omissions that the IRS considers to be “red flags” for tax fraud as well. For example, there are several activities that, while not inherently illegal, are viewed as having a high risk for fraud. These include:

• Maintaining offshore business bank accounts, and
• Accepting or making payments using cryptocurrency.

Is Your New Jersey Small Business at Risk of Being Audited by the IRS?

If you are concerned that your small business may be at risk for being audited, our attorneys can help you make informed decisions about protecting your business and personal assets. To speak with one of our experienced New Jersey tax lawyers in confidence, call 201-355-8202 or request an appointment online now.