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Thursday, September 12, 2013

How to guarantee an IRS audit in 2014

Building a tax strategy around IRS priorities and regulations helps avoid an audit
The IRS Priority Guidance Plan helps inform tax payers of audit probability
By Brian C. Hill

On August 9th, the IRS released its Priority Guidance Plan for 2013 - 2014. This annual plan outlines the most important tax issues that the IRS will target through updated regulations, rulings, or other administrative guidance during the time period from July 1st, 2013 to June 30, 2014. 

Although there is no guarantee that the IRS will actuallyissue guidance on every tax issue mentioned in the Priority Guidance Plan, it is important to be aware and updated on issues that receive such scrutiny and debate.  Failure to acknowledge these tax issues could be the perfect way to guarantee an IRS audit in 2014.

The first part of the Priority Guidance List Plan discusses red flagged tax issues that involve tax exempt organizations. Here are examples of some tax issues that the IRS is looking into:
  • An updating of EO Select Check (which is the IRS online tool that checks the exempt status of organizations). This seems to be an updating Revenue Procedure.
  • Guidance under Internal Revenue CodeS501 (c) (4) involving the percentage of an organization’s primary activity to see if is operated mostly for the advancement of social welfare, which includes guidance on political campaign intervention.
  • Guidance involving the latest rules applicable to donor advised funds as included in the Pension Protection Act of 2006.
  • Final Regulations under the Internal Revenue Code S7611 involving church tax inquires and examinations. The proposed regulations were released August 5, 2009.
  • Final regulations included in the Internal Revenue Code S501(r) and 6033 on the additional requirements for charitable hospitals as included by the Affordable Health Care Act.  Proposed regulations were released June 26, 2012 and April 5, 2013.
  • Revenue procedures revising the grantor and contributor reliance criteria regarding Internal Revenue Code S170 (income tax charitable deduction) and S509 (public charity classification).
  • Guidance involving the latest rules applicable to donor advised funds as included in the Pension Protection Act of 2006.
The Priority Guidance Plan also names the below items involving charitable giving and charitable trusts:
  • Regulations involving the uniform basis of charitable remainder trusts.
  • Complete regulations in the income tax charitable deduction rules involving a donor’s substantiation of noncash charitable contributions. The said documents were published on August 7, 2008.
  • Guidance involving adjustments to the formerly issued IRS paperwork for charitable remainder trusts.
  • Regulations in the income tax charitable deduction rules involving a donee’s substantiation of charitable contributions.
  • Regulations under the Internal Revenue Code S7701 submitting information for treating an entity as an integral part of a state, local, or tribal government.
It is vital to keep updated on the Priority Guidance Plan for 2013 - 2014 in order to see where the IRS is likely to focus its energy and resources with regard to audits for 2014. The list concentrates on areas that are most important to taxpayers and the tax administration. The Priority Guidance Plan is designed to clarify, clean up and update the current tax laws and issues. To keep current on the Priority Guidance Plan for 2013 - 2104 please refer to http://www.irs.gov/uac/Priority-Guidance-Plan.

About the author: Brian C. Hill, a licensed CPA and the President of Professional Tax Resolution, has helped thousands of businesses avoid audits and represented hundreds before the IRS. In addition to his audit defense and resolution firm, he also owns a local business accounting firm in Orange County.
* Image source and license: MBG; Royalty Free or iStock source: istockphoto.com