The Internal Revenue Service (IRS) increased the number of tax audits of small and medium size corporations between fiscal year 2005, and 2007 according to a report by TRAC. The number of tax audits for corporations with assets of less than $5 million increased by 41%, and tax audits for corporations with assets of between $5 million and 10 million increased by 24%. Tax audits of corporations with assets from $10 to $50 million in assets rose by 29%. On the other hand IRS tax audits of the largest corporations, those with assets over $250 million, dropped by 38%. The number of tax audits for those corporations with between $100 million and $250 million dropped by 31%. Some see this as a sign that the IRS is cracking down on small businesses while it is easing up on the largest companies. However, the IRS says that in fact the IRS doesn’t need to audit as many large corporations because of the success of the IRS pre-filing agreement programs.
Whatever the merits of the argument, small and medium size business need to be aware of the increased risk of a tax audits