| about the Author |
 Duane has over 17 years of professional experience and serves as the leader of the Tax Department in the Dallas office of HEIN & ASSOCIATES LLP. He specializes in tax compliance and strategic tax planning services for both domestic and international companies, including the identification, analysis, implementation, and documentation of various tax credit opportunities. Duane has significant experience assisting multinational companies with cross-border transactions, tax-efficient structures, due diligence, and a wide range of analyses for international acquisition and financing strategies. His hands-on approach provides clients with direct access to a seasoned tax professional with a well-rounded perspective.
Duane has developed a focus in the energy, manufacturing and distribution, and real estate industries. He assists both public and private companies with tax issues associated with partnership formations, including initial tax basis calculations, special allocation issues, and tax modeling. Duane’s career includes three years working and living in Calgary, Alberta, where he provided assistance to multinational companies. While in Canada, he gained significant experience assisting multinational companies with cross-border transactions, tax-efficient structures, due diligence, and international acquisition and financing strategies. Duane assists clients with Internal Revenue Service and other tax authority examinations, and regularly drafts requests for private letter rulings and other official rulings.
Prior to joining HEIN & ASSOCIATES LLP in 2004, Duane was a Senior Tax Manager for the Dallas office of Deloitte & Touche LLP. He is a regular speaker on a variety of topics, including cross-border transactions, basic international taxation, and oil and gas tax updates. Duane is currently a member of the Dallas Association for Corporate Growth (ACG). He received both his bachelor and master of accountancy degrees from the University of Oklahoma.
Duane can be reached at 972.458.2296 or dsnyder@heincpa.com.
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Your Audit Risk
By Duane Snyder, CPA, Tax Partner
Each year we receive questions about what the IRS is up to in the audit area. Individuals and businesses are naturally curious about what the IRS uses to trigger an audit. According to the latest statistics for 2008, a total of 1,391,581 individual returns were audited during fiscal year 2008 (October 1, 2007 through September 30, 2008). Of these, slightly over one-third were selected on the basis of an earned income tax credit claim, an area in which fraudulent returns have often been filed. Only about one-fifth of the returns were actually conducted in the field by revenue agents; the bulk of the audits were conducted by mail. Interestingly, the no-change rate was 11% for individual returns examined by revenue agents and 15% for mail exams.
When you are faced with a field audit, the IRS will be looking at some or all of the following issues:
- Are your lifestyle and your reported income comparable? Many audits are cases in which the taxpayer shows little taxable income and yet attends an audit in classy dress with expensive jewelry, and/or has costly furnishings in their home or office. This has been described as an individual who looks like a high roller, with the tax return of a missionary. You can count on receiving a thorough audit under these circumstances.
- Does your business handle large amounts of cash? A business that handles a lot of cash will automatically be subject to suspicion by an auditor. Again, the lifestyle will be important along with a thorough analysis of bank accounts and deposits.
- Auto expenses – do you write off 100% of the expenses for your only car? This is an area in which auditors “mine gold.” Many individuals do not want the trouble of keeping careful automobile records and just write off 100% of all costs associated with the auto. Common sense says that no one uses an auto 100% for business purposes.
- Entertainment expenses – how do you handle expenses for entertainment, meals or vacations? This is another area in which IRS auditors “mine gold.” This area has traditionally been subject to abuse, and if you have large expenses of these types that you treat as business expenses you may anticipate a rigorous examination. The government has published substantiation rules and these should be carefully followed.
- Do you treat those who work for you as employees or independent contractors? As noted elsewhere in this newsletter, the employee versus independent contractor issue is a hot topic for IRS auditors. You may expect a rigorous exam of the proper tax treatment for those who work with or for you.
- State tax issues. You should be aware that many states these days are hurting for cash. Therefore, if you file a state return that requests a refund, the state Department of Revenue may contact you to support the figures on your return. While this is not an audit per se, you may be asked to furnish the state with copies of all Forms W-2 and 1099 that went into the make up of your state return. In this manner, the state can verify when a refund claim is legitimate.
The IRS has other statistical means for selecting a return for audit. While your chance of audit is strictly random unless you have “hot issues” on the return, if a revenue agent is present, you can anticipate a long list of questions. Note that you may be represented at an audit and this is nearly always an excellent idea. Auditors always try to get the taxpayer to talk; i.e., chat about a variety of subjects that could give the auditor leads to follow. Two rules to remember are: (1) the auditor is not your friend, and (2) the less you say, the better.
Other articles in this newsletter:
Recent IRS Developments
Legislative Possibilities
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1st Quarter, 2010
