California business owners, prepare for an audit

Earlier this year, the Internal Revenue Service (IRS) made its 2012 Data Book available online. The publication, which details the tax-collecting body’s activities throughout the year, revealed that high-income Americans are statistically more likely to be audited than taxpayers in lower brackets. Now, a new study conducted by National Taxpayer Advocate Nina Olson has shown that the IRS has narrowed its scope even further.

Olson “used data from 2009 tax returns to plot the [Discriminant Inventory Function] scores for sole proprietorships across the country.” These ratings, referred to as DIF, are used by the IRS to determine a taxpayer’s likelihood of committing fraud.  Small business owners, in general, are considered more high-risk, the source states, as they have greater control over the income and expense figures the IRS receives. And, based on the DIF scores calculated by the government agency, business owners are ideal taxpayers to target for tax audits because they take more deductions.

Based on Olson’s findings, almost one third of potential targets are in California.    San Francisco and its surrounding bay area counties such as Contra Costa County, Alameda, Marin, and San Mateo were among the most suspect areas, so individuals in these regions may have greater cause to expect an audit.

If you have been audited by the IRS or Franchise Tax Board, an experienced tax attorney can be an invaluable asset. See our success pages and tax audit pages for more information. These professionals will advocate on your behalf to ensure that you don’t pay more than your due. Contact the tax attorneys at Moskowitz LLP in San Francisco to review your case.

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