THE IRS TARGETS MIDDLE-MARKET COMPANIES; WHAT THEY NEED TO KNOW

Because of the IRS’ new responsibility to enforce the employer mandated health care provisions of the ”Affordable Care Act” and other issues,  it appears the IRS is going to start targeting  Middle Market companies for audit.   

The audits will be performed by the Large Business International Division (LB&I Division) which is responsible for audits of the Fortune 1000 companies.  However the LB&I Division is also responsible for audits of companies with assets of $10 million to $100 million which is the typical size of companies considered to be midsized.  Because of limited resources and the historical focus on the Fortune 1000 there has been lighter coverage of middle-market in the past.  But no more, attention, resources and expertise are being shifted to the middle-market sector. This means more middle-market companies will be audited.

Normally middle-market companies do not have the same resources as the Fortune 1000 and are not as aware of IRS audit procedure or their rights as a taxpayer.   Many have an outside CPA that prepare the tax return and advise the owner or officers of tax and accounting issues.  However they will be faced with seasoned IRS auditors who are used to have immediate access to records and the tax professional during the audit.  This can cause significant issues during the audit for the owner and officer of the middle-market company.  Thus the middle-market company, as with all taxpayers, should assess their resources to see what is need to be prepared and which audit defense resources can be utilized.

The time to prepare for an audit is not when you get the audit notice, but when your tax return is prepared.   So if you have not thought of the possibility of being audited, this is a good time to have a conversation to see what needs to be done.  Normally, if a company is prepared for an audit before they receive the audit notice, an audit should never be a problem.