Wednesday, October 10, 2007

Uptick in IRS Audits of S Corporations

The IRS has indicated that they are going to increase the audits of S Corporations. They are keeping their words.

We're seeing a lot more of them. Generally we aren't seeing significant, if any, adjustments coming from them. We like to think that is because we are doing our job well.

One thing we are especially noticing is that S Corporations that use an employee leasing company (also known as a Professional Employer Organization) seem to be getting audited at a higher rate (this is an unscientific observation).

If you are using employee leasing, then you technically don't have wages to report on the officer's compensation and wages paid to employees lines. That's because you don't have employees - everyone is the employee of the leasing company. Instead you report that cost on the other deductions line.

Please keep this in mind - there is absolutely nothing wrong with using an employee leasing company. We ourselves use one, as do many of the companies we work with. They make sense in many situations. It just seems that is piquing the interest of the IRS.

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