Thousands of new IRS auditors coming – and soon

CFOs, it’s time to ensure that all your financial ducks are in a row. More IRS audits could soon be coming your way.

As we mentioned earlier this year, the Service promised to boost its efforts with more auditors. Specifically, it planned to increase audits of smaller businesses and their investors by around 50% in 2021, said IRS official De Lon Harris.

And now, IRS is delivering on that promise.

Accounting Today reports that the IRS small business and criminal investigations divisions are adding thousands of new employees. The small business unit will add about 2,000 employees before the end of September, and the criminal investigations unit will add at least 500 more people this year.

What to keep an eye on

For companies of all sizes, but especially smaller companies, this news should be incentive to review your audit practices and finance records.

That becomes all the easier if CFOs and their teams know what might prompt unwanted attention from IRS auditors. Here are some red flags that can spur visits for small businesses, according to the finance and accounting experts at GrowthForce:

1. Excessive T&E spend: Too much “fun” can earn you a glance from IRS. That is, if the Service thinks personal expenses may be passed off as business costs.
2. Lots of cash: Companies heavy on cash transactions are also a target. The way the Service sees it, cash is less traceable and gives ample opportunity for fraud.
3. Lots of independent contractors: To IRS, this may signal an attempt to avoid paying workers as employees. Cue the classification concerns.
4. Information return errors: In recent years, IRS has had a particularly close eye on 1042-S, 1099 and W-2 compliance. Even small mistakes could garner additional scrutiny.

By taking time to make sure you’re in a good place now, your team will be able to rest a little easier if IRS auditors do come knocking in the future.