IRS Comparing Corporate Tax Deductions and Plan Contributions for Discrepancies – Los Angeles Income Tax Planning and Income Tax Litigation Attorney Bruce Givner

by Bruce Givner on March 18, 2014

When selecting plans for audit, one of the tactics used by the Internal Revenue Service includes comparing different databases used for various purposes within the agency. For example, the IRS Employee Plans Compliance Unit is currently engaged in a project looking for improper corporate tax deductions. The Unit accomplishes this by looking for discrepancies of at least $1,000 between amounts recorded on Forms 1120, the Corporate Income Tax Return, and 5500, the Annual Return/Report of Employee Benefit Plan.

According to Thomas G. Schendt, a partner in the Washington office of Alston & Bird LLP and a member of the TE/GE planning committee, the $1,000 indicates a broader IRS effort for selecting plans for audits. Through comparisons between different forms used for various purposes the IRS is showing “a clear focus on whether they’re in concert with one another or not.” Beyond simply the $1,000 discrepancy the agency can use these comparisons when determining whether or not to audit the plan.

The IRS carries out these comparisons for more than just corporations, though. Another example of this kind of investigation includes comparing the Form 1099-R, used for distributions from pensions, annuities, individual retirement accounts, insurance contracts, and related items, against employees’ personal tax returns on the Form W-2. In these comparisons, Schendt states that the agency is likely scrutinizing the accuracy of reporting on loan defaults, hardship distributions, and delayed minimum required distribution.

Although the IRS recognizes that there are often perfectly legitimate reasons as to why the numbers don’t match up, the agency believes the project will help determine if this issue deserves more attention. Schendt believes that if the IRS begins to see discrepancies showing up in multiple plans the agency may consider significantly increasing it sample size.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

Leave a Comment

Previous post:

Next post: