Own an S-Corp? Get Ready for an Audit

July 25, 2005

Today the IRS announced it plans to audit up to 5,000 businesses over the next 2 to 3 years in order to measure tax evasion. From the Washington Post:

The research will target randomly selected S-corporations, enterprises that do not pay corporate income tax but instead pass income and taxes through the business to individual shareholders. The audits will include those shareholders.

S-corporations have become the most common type of business, accounting for nearly 60 percent of all corporate tax returns in 2002, the most recent statistic available.

“The use of S-corporations has exploded,” said IRS Commissioner Mark Everson. “The IRS needs a better understanding of what this means for tax compliance.”

For more a detailed account of the new study on S-corps, check out the IRS’s press release. For more the tax-related causes of the explosion of the number of S-corporations in recent years, see Scott A. Hodge’s earlier post on S-Corps and the 1986 Tax Reform Act.

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