Posted by John Hyre on March 12, 2010 at 04:19:28:
Not much is published on the subject. The IRS intentionally holds its cards close to its chest on this issue. There was a book written by a statistician back in the 1990’s on the subject. He got audited and got even by reverse-engineering the stats on items likely to increase the chances of an audit, While the data is old, the principles would still apply. I’ll see if I can find the author’s name…it was of Armenian extraction, if I recollect correctly. There are likely some law journal or CPA type of articles on the subject, though I have not checked in awhile.
We always ask auditors why a client was selected for audit and most of them will answer. Some of it simply random. Usually, they look for oddities. For example, I had one client get audited because all of her rentals showed zero income for the year. When I pointed out to the agent that she bought them all in December of that year and did not get any rent until January, the audit quietly ended. Handwritten returns get audited much more often because they scream “amateur hour” and are statistically very likely to contain errors. Returns with math errors of any sort, including failure to match 1099’s and the like are more likely to get audited, though explanations of discrepencies can reduce the odds of an audit. The list goes on, most of it based on experience. To be fair, most of the IRS’ reasons for selecting returns to audit tend to make a certain amount of sense.
First is, I have an s-corp that I didn’t use at all in 2009. It’s active and I have a checking account for the s-corp, but didn’t do any business in it. I understand that s-corp taxes are due March 15. Since I didn’t do any business and made no profits or losses, do I just put “0” in ALL of the lines on the tax return? Or jut on certain lines?
Also, these next 2 questions might seem like the dumbest tax questions ever, but is it ok to handwrite the tax return? Or should I do it over the computer? And also, when I mail in the tax return, what type of envelope do I need to send it in? Is a #10 envelope good or should I send it in a package/document envelope?
Even though you did not do any business, surely you had some overhead expenses, telephone, cell phone, checking account statement charges, business credit card annual fee, legal fees, annual registration fees, etc.?
How about depreciation for any capital equipment the business owns?
Yes, file a zero tax return if you truly had no income or expenses.
Re: NEED HELP with Tax questions - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 10, 2010 at 19:34:15:
Also, these next 2 questions might seem like the dumbest tax questions ever, but is it ok to handwrite the tax return? Or should I do it over the computer? And also, when I mail in the tax return, what type of envelope do I need to send it in? Is a #10 envelope good or should I send it in a package/document envelope
Yes, you can handwrite it. Though OFC doing it on computer may be easier, easier to read etc.
Any envelope works as long as the returns and schedules fit. If it’s Federal then there should be one provided in the booklet they sent you.
No, I had none of that as I decided to do business in my LLC, but I decided to keep my s-corp open as I might eventually use it in the future, and hopefully I can get a bank line of credit in the future.
Is every line on the tax return is suppose to show “0” or just in certain lines?
Thank you! Can you tell me what kind of “schedules” I might need for an s-corp, even though I’m claiming no profits or losses? Can’t I just send in the tax return for s-corp, I forget which form number that is?
My forte is the personal income tax return (Form 1040). I don’t do corporate returns, have never done a corporate return.
With that disclaimer, here is what I would do in your sitution, never having completed Form 1120S before.
On Form 1120S I would put zeroes at lines 1a, 1b, 1c, 2, 6, 20, 21, and 25.
On Schedule A (1120S), I would zero line 8
On Schedule B (1120S), I would fill in the requested information and/or answer the questions at lines 1, 2, 4, and 8.
on Schedule K (1120S), I would zero line 1 through 10, and line 18.
Just what I would do as someone who is not a licensed tax professional, and who may not know any better. Not saying this is correct.
Posted by Kristine-CA on March 11, 2010 at 22:48:41:
John Hyre: thanks for this info. Is there anywhere where I can read more
about actual CPA experience with what triggers an audit? I feel like it’s so
much hear-say and not much fact. I’m guessing there is some CPA club
that shares real numbers and experiences with audits? Is there anywhere
where the IRS confirms any of if? Thanks, Kristine
Posted by John Hyre on March 12, 2010 at 04:10:07:
Certain profit-loss patterns can trigger an audit, but the one you describe does not strike me as one likley to attract attention, espcecially in the present economic environment.
the IRS has flags for many catagroies - Posted by You know who
Posted by You know who on March 12, 2010 at 13:14:18:
For example charity contributions. based on there statiscal data, and obviously they have a bunch od data, they figure out on average how much a person earning say $100,000 contributes to charities. If you exceed that avergage, you are potential audit candidate. High medical deductions or casualty losses could trigger an audit.
If you show high gross earnings but low net earnings, indicating higher than average deductions, credits or offsets, you could be an audit candidate.
If your life style seems to exceed yuor income. Say you have a new Mercedes and a new Porsche and you say you only make $15,000.
One of the big things that they look for is unreported income. They will look at all your bank transactions, and all major purchases and want you for account for the totals, especialy when it exceeds your stated income.
Lifestyle not supported by your stated income will trigger an audit.
Informants such as ex-spouses or jilted lovers can trigger an audit also.