IRS Launches Taskforce Against Pass-Through Entities
Audio version available here (2 min.)
There are many benefits associated with structuring your business as a pass-through entity. Its title “pass-through” trait allows for business profits to avoid taxation until they are in the hands of the owners. This prevents a double tax situation that is widely considered the downside of a C corporation. However, with its multi-billion dollar budget, the IRS has set its focus on all pass-through entities. Here is what that can mean for you.
Aided by billions in funding from the Inflation Reduction Act, the IRS has ramped up investigations into businesses and individuals since September of 2023. It recently announced that a unit made specifically for auditing pass-through entities is now in operation within the Large Business and International division (LB&I). The LB&I will now start all investigations into pass-through entities in geographically based field operations teams.
Pass-through entities that avoid the corporate income tax rate include S corporations, partnerships, LLCs, and sole proprietorships, though the IRS has emphasized its focus on S corporations, partnerships, and trusts. In the last year, the IRS has mainly focused on high-income businesses and individuals, but this new taskforce will not discriminate. The LB&I will pursue audits of pass-through businesses “regardless of entity size”. So even if your business is not generating millions of dollars in revenue, you could end up on the IRS’s radar.
What this means for business owners is that the likelihood of an IRS audit is increasing significantly. While an audit does not automatically mean you have committed a crime, it is vital to ensure all your tax records are in order in the coming months. If you come face to face with an auditor and cannot provide adequate evidence for the questions they may ask you, the situation can result in penalties and extra taxes.
The prospect of an IRS audit may fill you with anxiety, but if you are diligent in tax planning, an audit doesn’t have to be something to lose sleep over. To keep your business safe, work with a tax professional you can trust. By implementing the right tax strategies and maintaining accurate records to substantiate any tax deductions you may claim, you should be able to pass an audit without issue. If you are currently facing an audit and do not have a CPA by your side, reach out to XQ CPA. Our CPAs and Certified Tax Coaches would love to help you.
Phone: 832-295-3353
Online Booking: https://xqcpa-bookme.acuityscheduling.com/schedule.php
Source:
Want to pay less taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
Comments