IRS Tax Audits: A Warning To S Corp Officers On How To Handle Officer Compensation
The IRS is deploying technology and big data to combat compensation under-reporting. This likely means reasonable compensation challenges will likely occur outside the traditional exam process. A challenge most likely will come from the ongoing Employment Tax Program or the newly launched CIP.
The IRS is currently running two specialty compliance programs that target officer compensation:
Compliance Initiative Project (CIP): In August 2020, the IRS began its newest CIP targeting non-payment and underpayment of compensation to officers of S corporations.
Specialty Workstream: The IRS’s first CIP to focus resources on the issue of officer compensation was transitioned into a Specialty Workstream under the Specialty Examination Employment Tax Program focused solely on S Corp. officers’ compensation. But it has not gone away.
Customized Internal Planning (CIP) is one of the most effective tax planning methods available to corporations. CIPs are designed by highly-qualified tax experts to address specific client issues that arise outside of the annual tax planning cycle. Specifically, CIP’s provide strategies and solutions in response to IRS concerns. Please note: CIP’s are not suitable for all businesses, and are most beneficial for established firms committed to growth or faced with emerging compliance issues.The Internal Revenue Service (IRS) started a compliance improvement program (CIP) in August 2020, again focusing on the lack of officer's compensation associated with S Corps. The program is intended to direct more resources to the issue that has been badly addressed in recent years. What are some of these resources?
Issue Recommender: A 2018 pilot program called “Issue Recommender” uses algorithms to identify anomalies and commonalities among similarly situated tax returns.
Discriminant Function System (DIF): The DIF tax return scoring models measure and grade the risk of non-compliance and subsequently assign a score to the return based on the potential for overall tax change to the taxpayer’s return.It’s no longer the luck of the draw if you get challenged; technology is now zeroing in on officer compensation. See how technology can tip the scales in your favor when it comes to challenging your reasonable compensation figures.