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Wednesday, February 10, 2016

Part 2 of IRS Audit Compliance Initiative Project

Murrieta Tax Service is sharing this IRS table explaining the findings in Part 2 of the Audit Compliance Initiative Project. This table presents the projects that the IRS will work on in the next fiscal year.

Compliance initiative project Description Project completion date Region conducted
Physicians with large deductions for car and truck expenses on Schedule C Taxpayers targeted:
Physicians filing Schedule C with car or truck expense deductions of more than 1.14% of their gross receipts

Preliminary IRS results:
The IRS expanded this program based on initial results. Office audits conducted in the first part of the project yielded $11,182 per return and a no-change rate of 3%.

Notable information:
The IRS will conduct office and field audits as part of the expanded initiative.

12/31/2012 Gulf states
Foreclosed rental property Taxpayers targeted:
Taxpayers with foreclosed rental properties who take large losses on disposition of the property

Notable information:
According to feedback from IRS passive activity loss technical advisors, this is becoming a widespread compliance issue.

12/31/2012 Midwest
Like-kind exchange Taxpayers targeted:
Taxpayers who have incorrectly reported a like-kind exchange transaction

Notable information:
Reports from the Treasury Inspector General for Tax Administration (TIGTA) show an increase in like-kind exchanges across the nation and a corresponding increase in potential abuses. Examples of abuses include transactions involving properties that aren’t like-kind, exchanges with related parties, and incorrect property basis figures.

1/31/2013 Midwest
Partner self-employment tax Taxpayers targeted:
Taxpayers who fail to pay self-employment tax on their share of partnership income and/or guaranteed payments

Notable information:
Feedback from IRS field agents indicates that this is becoming an increasingly prominent compliance issue.

2/28/2013 Midwest
Casualty losses for high-income taxpayers Taxpayers targeted:
High-income taxpayers (income of more than $199,999) with casualty-loss deductions of more than 50% of their adjusted gross income

Preliminary IRS results:
The IRS expanded this project after initial results produced an average adjustment of $25,869 and a no-change rate of 21.21%.

3/31/2013 Gulf states
Employee business expenses Taxpayers targeted:
Taxpayers who deduct employee business expenses. This CIP focuses on issues including nondeductible expenses, personal expenses, reimbursements and lack of substantiation.

Preliminary IRS results:
The IRS conducted office audits for a CIP focusing on employee business expenses in the Midwest. Those cases yielded an average of $4,148 per return and a no-change rate of 8%.

Notable information:
The Midwest CIP proved taxpayer noncompliance in employee business expenses. The IRS will also primarily conduct office audits in the North Atlantic CIP.

5/30/2013 North Atlantic
Yacht-chartering activities Taxpayers targeted:
Yacht-chartering businesses filing Schedule C, especially with reported losses. The IRS is also auditing partnerships and corporations in this project.

Notable information:
The development of this CIP was based on a case decided April 18, 2011, in U.S. Tax Court: Alain J. and Carol M. Hanover vs. Commissioner of Internal Revenue. The court found that the taxpayer was not engaged in for-profit trade or business from yacht chartering and was ordered to pay approximately $295,000 in taxes and approximately $59,000 in accuracy-related penalties.

The IRS’ goal is to deter taxpayers from using a yacht-chartering business as a way to purchase a yacht for personal enjoyment and then deduct losses for the yacht-chartering activities.

7/31/2013 North Atlantic
Hobby farm loss in city tax home Taxpayers targeted:
Taxpayers in urban areas of New York state and New England who earn wages or own a business and report farm losses on Schedule F

Notable information:
The IRS hopes this CIP will increase compliance in reporting farming activities.

8/30/2013 North Atlantic

Source: Internal Revenue Service, February 2012


  1. Comments  sandy   |  Wednesday, 21 November 2012 at 12:35 am

    I enjoy this weblog, fantastic content material and I am going to bookmark this website for future updates.

  2. Comments  Antoinette Dominguez   |  Tuesday, 08 January 2013 at 7:11 am

    quite interesting, heard it before but still interesting.

  3. Comments  Anonymous   |  Friday, 25 January 2013 at 10:12 am

    Incredible points. Outstanding arguments. Keep up the good spirit.

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