If you are a mid to large sized organization then please be careful. Last week the IRS released it's data on last year's enforcement activities - and audits in relation to information reporting errors are rising.

The annually released IRS Data Book presents data on information reporting and verification. In addition to receiving information on self-reported income and tax on returns filed by taxpayers, the IRS gathers independent information about income received and taxes withheld from information returns, such as Forms W–2 and 1099 filed by employers and other third parties. The IRS matches these information returns to tax returns and contacts taxpayers who aren't doing their information reporting job properly to resolve those issues (most often this contact takes the form of B-Notices, penalty notices, and audits). Remember, the IRS uses information returns from third parties such as organizations like yours to assess tax, interest, and penalties if your information reporting due diligence, compliance, and reporting procedures are lacking.

The data released last week focuses on 2016. If you are in Accounts Payable or Tax in even a modest sized organization (no less a Fortune 500 company) then the numbers are not pretty. Now, you may have heard that individual audits are down, and this is true. Conversely however, and as the IRS budget is squeezed, businesses and organizations (such as universities, community colleges, hospitals, tax-exempt organizations, insurance companies and more) around the country are seeing increased IRS enforcement activity. The bulk of this activity is aimed at cracking down on Form 1099/1042-S related mistakes made by Accounts Payable and Tax departments as part of a targeted push to get the most revenue buck out of limited assets.

To that end, tables included in last week's IRS data book show that organizations with at least twenty million dollars in total assets were audited last year at an unprecedented 78% rate. Keep in mind this figure does not include B-notices or penalty notices assessed. Also keep in mind that even relatively small sized organizations such as local community colleges or maybe a small auto parts supplier can easily cross that key twenty million dollar threshhold. What's more, if your organization has even a mere five million dollars in asssets you face a greater than one in three chance of being audited in 2017 for mistakes made in processing Form 1042-S/1099 reportable payments. This means that over a three-year period your chances of having your Accounts Payable and Tax operations audited have now risen to 100 percent!

Luckily, we are here to help. Our tax attorneys offer year-round guidance to your AP, HR, or Tax Department and can provide you with targeted tips for audit-proofing your information reporting due diligence, compliance, and reporting procedures - all without leaving your office!