IRS Audit Red Flags
1. Company Cars - Employers frequently don't report the taxable benefit that employees receive from their personal use of company-owned cars. The IRS plans to focus on the use of company cars, especially "luxury" models, in its next series of audits.
2. High Income Taxpayers - The IRS will aggressively pursue self-employed taxpayers with gross income of more than $1 million. In 2011, the IRS audited 12.5 percent of all individuals with incomes of more than $1 million (up from 8.4 percent in 2010). These audits are frequently performed by the LB&I audit groups and are much more invasive than typical audits. These audits should always be fought with a tax attorney.
3. Form 1099-K Matching - Form 1099-K (credit card) matching payee statements with receipts will be the focus of small business auditing. This is the new "cash audit" program and will focus on restaurants and formerly cash businesses.
4. Health Insurance Credits - The IRS will examine employers and nonprofits to determine eligibility under the health care credit.