Common Income and Employment Tax Issues During IRS Business Tax Audits

If your business is facing an IRS tax audit in 2024, it will be important for you to know what you can expect during the process. This includes knowing what issues are likely to come up—and knowing what risks these issues present not only for your business, but also potentially for you as a business owner. Here, Washington D.C. business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, provides an overview of common income and employment tax issues that tend to come up during business tax audits.

Common Income Tax Issues During IRS Business Audits

We’ll cover income tax-related issues first. Now that Tax Day has come and gone, the IRS will be closely scrutinizing many businesses’ returns to determine if they contain errors or present other “red flags” for business tax evasion or tax fraud. While the IRS targets businesses (and their owners) for all types of income tax-related violations, some of the most common issues we’ve seen during IRS business tax audits recently include:

• Improperly claiming personal expenses as business expenses (including travel, meals, vehicles, electronics and other purchases)
• Improperly calculating depreciation, interest expenses, and other deductions
• Underreporting taxable income from the sale of products or services
• Failing to report (or improperly reporting) gain from the sale or exchange of cryptocurrency
• Failing to disclose foreign income from offshore business activities or holdings

Again, these are just examples of some of the most common issues we’ve seen over the past couple of years. Numerous other issues can present risks for businesses (and their owners) during IRS business tax audits as well—including risks for criminal enforcement in some cases.

Common Employment Tax Issues During IRS Business Audits

Along with income tax-related issues, employment tax violations can also lead to problems for businesses and their owners during IRS audits. The IRS expects businesses to strictly comply with all relevant provisions of the Internal Revenue Code, including those pertaining to the collection and remittance of employment taxes. With this in mind, additional issues that can trigger civil or criminal penalties during an IRS business tax audit include:

• Failing to properly collect the employee’s share of FICA taxes
• Failing to properly hold the employee’s share in trust and timely remit it to the IRS
• Failing to accurately calculate and pay the employer’s share of FICA taxes
• Inaccurately reporting payroll figures or payroll expenses
• Improperly claiming the Employee Retention Credit (ERC)

Here too, these are just examples. If the IRS is auditing your business (or if you have concerns about facing an IRS business tax audit), we encourage you to contact us promptly for more information.

Contact Washington D.C. Business Tax Attorney Kevin E. Thorn

Washington D.C. business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience representing businesses and their owners during IRS audits. If you would like to schedule an appointment with Mr. Thorn, we invite you to get in touch. Call 202-349-4033 or contact us online to request an appointment today.