Four Reasons For Corporate Audits

Being audited by the IRS is a fairly common experience for corporate business owners. While it can be unsettling to receive a notice of audit, it’s not something you should fear, especially if you work with an experienced tax attorney. I often receive questions from San Francisco business owners about why they’re being audited. Here are four common triggers of IRS corporate audits.

1. Too many deductions — While businesses are expected to have a fair number of deductions, having too many is often seen by the IRS as a red flag. The IRS looks for expenses that are a bit out of the ordinary, such as excessive meals and entertainment that are deemed an expense, or travel that may include more than business. Additionally, the IRS is strict about how much a vehicle can be written off as a business expense.

2. Filing amended returns — Taxpayers often try to amend tax returns from a prior year as quickly as possible. But, amended returns are highly likely to be audited. If your business has a history of filing amended returns, you could be at risk for an IRS audit.

3. Earning more than $10 million in assets — The IRS generally likes to audit those that make a substantial amount of income. If you own a business with more than $10 million in assets, your chances of being audited are increased compared to those that report less. Additionally, an individual that makes more than $200,000, that can set off a red flag and your chance of being audited increases.

4. Not properly classified employees during payroll taxes — This can be a major red flag for California business owners and the state Employment Development Department (EDD). The department frequently conducts EDD audits to businesses that classify a worker as an independent contractor instead of an employee. Make sure all your employees are classified correctly as you file payroll taxes. If not, and you’re subjected to an audit, the EDD can personally assess the San Francisco corporate business owner for “unpaid” payroll taxes because the EDD has determined that they believe these workers are actually employees. 

Remember that being audited is a very common practice and it does not mean you’ve done anything wrong to warrant the action. That being said, the audit process can go more smoothly by letting an experienced San Francisco tax attorney navigate the IRS and audit waters for you.

Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.

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Allison Soares

Allison Soares, a renowned tax attorney, excels in representing clients before the IRS, FTB, EDD, and CDTFA. With a Bachelor of Arts in Finance from the University of Wisconsin, Milwaukee, and a transformative teaching stint in Brazil, Allison’s diverse background enriches her legal expertise. She pursued law at St. Thomas University School of Law, Miami, complementing it with an MBA in accounting and forensic accounting. Further honing her skills, she obtained a Master of Laws in Taxation from the University of San Diego School of Law. As an adjunct professor at San Diego State University, Allison imparts her knowledge in tax procedures, practice, and ethics. Her accolades include being named Best of the Bar by the San Diego Business Journal and multiple Super Lawyer recognitions. Committed to community service, she volunteers with Forever Balboa Park and Friends of Balboa Park. Allison’s authoritative contributions in tax law are showcased through her publications and speaking engagements.

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