The Internal Revenue Service’s small business unit is expecting to head in a new direction to keep up with the times. Small corporations have longtime held the spotlight of IRS audits and inquiries. But seeing that S corporations, partnerships and other pass-through entities make up 95 percent of all U.S. businesses, the IRS now expects to focus their attention on partnerships.
Faris Fink, the commissioner in charge of the IRS’s Small Business/Self-Employed Division quotes “The Service has for a long time focused its energy on corporations…Frankly, we’re a little bit behind the curve in getting around to developing a partnership strategy.” He also stated, “We as an organization have recognized that this is something that we’ve got to be paying attention to, not just this year, but going forward,” Fink said.
If your business is a partnership, be aware that you may be more likely to be selected for an audit than in years past. If you haven’t been doing a very good job with your bookkeeping, it’s time to make sure you have an accounting system in place. If audited, you’ll need to substantiate each deduction, and prove your income figures. It’s imperative that your bookkeeping be done properly and allow you to easily generate the information needed to prove your records are accurate. The tax preparer will need to easily calculate each partner’s percentage of income or loss as well. If you need assistance with this aspect of your business, ask those you know for a referral to a bookkeeper and/or CPA they trust. And if the IRS comes knocking on your door, you’ll be prepared and know that everything is in order.