Tax Machine Blog™

IRS Audit Technique Guides for Small Business Owners

Do you run a small business? Are you being audited, or do you feel that your line of work presents a unique audit risk? Have you ever wondered how the IRS might approach an audit of your specific kind of business?

Well, the IRS has actually decided to “show its hand” for certain types of small business owners. Some of the categories covered in the IRS Audit guides include very broad types of businesses – such as industries that deal in lots of cash. Some of these audit guides are very specific – such as this one, dealing with fishing.

Here is a list of the different audit guides that the IRS has made available to the general public on its website here:

 

Aerospace Industry
Publication Date: 01/2005
The Service has prepared a comprehensive audit techniques guide to assist examiners in evaluating research credit in the aerospace industry. The guide focuses on the particular unique aspects of the industry and provides examiners tools and tests to utilize in evaluating and auditing research credit.


Air Transportation (PDF – 1.85MB)
Publication Date: 04/2008
Overview of excise tax paid for transportation of persons or property by air.


Architects and Landscape Architects (PDF – 378.27KB)
Publication Date:
 08/2011
This audit technique guide (ATG) has been developed to provide guidance to taxpayers as well as to revenue agents and tax compliance officers conducting examinations in the architect and landscape architect service industries.


Art Galleries – Audit Technique Guide (PDF – 461KB)
Publication Date: 01/2012
This Audit Technique Guide (ATG) has been developed to provide guidance to taxpayers as well as to revenue agents and tax compliance officers conducting examinations of Art Galleries.


Attorneys Audit Technique Guide (PDF – 525.34KB)
Publication Date: 03/2011
The Attorneys Audit Techniques Guide is intended to provide guidance to the examiner who is auditing a taxpayer who is an attorney or an attorney firm and to provide tax related guidance to taxpayers and other professionals in this industry.


Business Consultants (PDF – 700KB)
Publication Date: 07/2011
The Business Consultants ATG now includes an income section that addresses the shifting or the assignment of income issue and the substance versus form issue an examiner may encounter when conducting an examination.


Capitalization v Repairs
Publication Date: 11/2010
The ATG provides techniques for reviewing and examining capitalization v repairs issues.


Cash Intensive Businesses
Publication Date: 04/2010
Businesses that have substantial cash transactions are included in the consolidated Cash Intensive Businesses Audit Techniques Guide. Some of these businesses include bail bondsbeauty shops,car washes, check cashing establishments, coin operated amusementslaundromatsscrap metal, some convenience stores and Taxicabs. Guidance is also provided on examination of income, interview techniques, and evaluation of evidence.


Child Care Provider (PDF – 220KB)
Publication Date: 3/30/2009
This Audit Techniques Guide will provide information on tax related issues pertaining to the child care providers industry. It provides guidance on accounting for income and deductions. Intended audiences are taxpayers, tax professionals and IRS examiners.


Coal Excise Tax (PDF – 471KB)
Publication Date: 05/2005
Provides excise tax agents with specific tools to examine issues relating to domestically produced coal.


Commercial Banking (PDF – 857KB)
Publication Date: 05/2001
Overview of the industry. Discusses potential issues and terminology unique to banking.


Conservation Easement (PDF – 926KB)
Publication Date: 11/2011
Audit Techniques Guide providing guidance on charitable contributions of conservation easements.


Construction Industry (PDF – 2.6MB)
Publication Date: 05/2009
Overview of the industry including a glossary. Discusses types of contracts; types of contractors; methods of accounting; and joint ventures. This updated guide includes the filing locations for Rev. Proc. 92-29 elections (Chpt 7); includes contractor square footage costs (Chpt. 11); and common errors in look-back interest filings (Chpt. 5). See also Examination and Closing Procedures Form 8697, Look-Back Interest, Publication Date: 05/2007, for general information regarding the application of Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.


Continuation of Employee Healthcare Coverage (PDF – 360KB)
Publication Date: 03/2012
This audit techniques guide was developed to provide guidance to IRS employees and taxpayers concerning the Consolidated Omnibus Budget Reconciliation Act of 1985.


Cost Segregation
Publication Date: 01/14/2005
The Service has prepared a comprehensive audit techniques guide to assist examiners in evaluating cost segregation studies submitted by taxpayers in support of depreciation deductions. The guide is also beneficial for taxpayers and practitioners in preparing these studies.


Credit for Increasing Research Activities (i.e. Research Tax Credit) IRC § 41 (PDF -116KB)
Publication Date: 06/2005
This audit techniques guide sets forth the Research Credit Technical Advisors’ suggested guidelines for auditing research credit issues.


Excise Tax on Indoor Tanning Services (PDF – 469KB)
Publication Date: 12/2013

The Excise Tax on Indoor Tanning Services Audit Techniques Guide provides an overview of the indoor tanning tax and examination direction. Intended audiences are taxpayers, tax professionals and IRS examiners.


Executive Compensation – Fringe Benefits
Publication Date: 02/04/2005
Corporate executives often receive extraordinary fringe benefits that are not provided to other corporate employees. Any property or service that an executive receives in lieu of or in addition to regular taxable wages is a fringe benefit that may be subject to taxation.


Factoring of Receivables (PDF – 32KB)
Publication Date: 06/2006
This audit techniques guide focuses on a strategy in which multinational corporations use factoring of accounts receivable among related parties to avoid U.S. taxation by shifting income offshore and reducing U.S. income by deducting expenses related to the same income.


Farmers
Publication Date:
 07/2006
The Farmers Audit Techniques Guide (ATG) focuses on developing highly trained examiners for the agricultural market segment. The Guide contain examination techniques, common and unique industry issues, business practices, industry terminology and other information to assist examiners in performing examinations. Some agricultural guides covered include cottonraisin grapesgeneral livestocklivestock marketing/auction barnsgrain, and tobacco.


Fishing Audit Technique Guide (PDF – 851KB)
Publication Date:
 08/2011
This guide provides technical information and audit techniques for common issues in the fishing industry. The intended audience is fishermen, tax professionals and IRS examiners.


Foreign Insurance (PDF – 434KB)
Publication Date: 04/2008
This audit techniques guide was designed to assist the examiner in conducting audits where Excise Tax of Foreign Insurance transactions may be due.


Golden Parachute
Publication Date: 02/04/2005
The Service has prepared a comprehensive audit techniques guide to assist examiners in evaluating parachute examinations. The parachute examination can occur during the examination of either the corporation’s or the individual’s return.


Hardwood Timber Industry (PDF – 480KB)
Publication Date:
 12/2012
This Industry Guide is intended for examiners conducting audits in the hardwood timber industry and as information for taxpayers and practitioners associated with the hardwood timber industry.


IC-DISC Audit Guide
Publication Date: 03/2012
This IC-DISC Audit Guide is intended to provide guidance to examiners who are auditing a Form 1120 IC-DISC and/or its related shareholder(s).


Inland Waterways (PDF – 607KB)
Publication Date: 12/2008
This audit techniques guide is intended to provide assistance to the examiner who is auditing a taxpayer for which the use of the Inland Waterways is an issue.


IRC 162(m) Salary Deduction Limitation
Publication Date: 02/04/2005
Every publicly held corporation maintains its executive compensation records differently. Likewise, every publicly held corporation maintains different methods for compensating its executives. As the examining agent, you must first learn the identity of the individual(s) within the corporation who are most familiar with how the executive compensation records are maintained.


IRC § 183: Activities Not Engaged in For Profit (PDF – 723KB)
Publication Date: 06/19/2009
This audit techniques guide (ATG) has been developed to provide guidance to Revenue Agents and Tax Compliance Officers in pursuing the application of IRC § 183, Activities Not Engaged in for Profit (sometimes referred to as the “hobby loss rule”).


Lawsuits, Awards, and Settlements (PDF – 568 KB)
Publication Date: 05/2011
This guide focuses on taxability of lawsuits, awards and settlements.


Low-Income Housing Credit – Guide for Completing Form 8823 (PDF – 841 KB)
Publication Date: 01/2011
IRC 42, The Low-Income Housing Credit (LIHC) Program, is co-administered by the IRS and state housing credit agencies. As part of their administrative responsibilities, the agencies monitor the housing project for compliance with IRC 42 requirements and report any observed noncompliance to the IRS using Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition. This ATG provides state agencies with guidelines for evaluating taxpayer compliance and reporting noncompliance to the IRS.


Ministers (PDF – 243KB)
Publication Date: 04/23/2009
The Ministers Audit Techniques Guide is intended to provide guidance to the examiner who is auditing a taxpayer who is a minister and to provide tax related guidance to taxpayers and other professionals in this industry.


New Markets Tax Credit (PDF – 208KB)
Publication Date: 05/2010
The New Markets Tax Credit (NMTC) Program, enacted by Congress as part of the Community Renewal Tax Relief Act of 2000, is incorporated as section 45D of the Internal Revenue Code. This Code section permits individual and corporate taxpayers to receive a credit against federal income taxes for making Qualified Equity Investments (QEIs) in qualified community development entities (CDEs).


New Vehicle Dealership (PDF – 1.99 MB)
Publication Date: 1/2005
This guide will give you the key to a quick and competent closure of any new vehicle dealership examination which hinges on narrowing the scope of the examination to items that may prove productive.


Non-Qualified Deferred Compensation
Publication Date: 02/04/2005
The Service has prepared a comprehensive audit techniques guide to assist examiners in evaluating non-qualified deferred compensation. A nonqualified deferred compensation (NQDC) plan is any elective or nonelective plan, agreement, method, or arrangement between an employer and an employee (or service recipient and service provider) to pay the employee compensation some time in the future.


Obligations Not in Registered Form (PDF – 275KB)
Publication Date: 6/2006
Obligations Not in Registered Form


Obligations Not in Registered Form D (PDF – 84KB)
Publication Date: 06/2006
Obligations Not in Registered Form D


Oil and Gas Industry (PDF – 494KB)
Publication Date: 5/1996
Provides information on basic operations and common terminology. Includes reference to royalty owners and an introduction to financial products.


Ozone Depleting Chemicals (PDF – 412KB)
Publication Date: 9/2007
This is the audit techniques guide for Ozone Depleting Chemicals (ODC).


Partnerships
Publication Date: See Table of Contents for Publication/Revision Date of the Individual Chapters
The focus is on issues that fall within sections 701 through 761 of the Code (Subchapter K). Subchapter K deals primarily with the formation, operation, and termination of partnerships. Many issues arise during the initial or final year of the partnership.


Passive Activity Losses (PDF – 3437 KB)
Publication Date: 02/2005
Provides examiners with specific guidance on potential audit issues, issue identification and lead sheets and other job aids.


Placer Mining (PDF – 181KB)
Publication Date: 7/1999
Provides guidelines for the examination of taxpayers in this industry. Focuses on small mining operations represented as sole proprietorships on Schedule C, but can be adapted for partnership and corporate returns.


The Port Project (PDF – 282KB)
Publication Date: 8/1995
Provides examiners assistance in auditing industries related to coastal and inland waterways.


Reforestation Industry (PDF – 120KB)
Publication Date: 8/1995
Overview of the industry. Discusses some issues that may be encountered – including employment taxes; poor accounting records; etc.


Rehabilitation Tax Credit (PDF – 353KB)
Publication Date: 12/2002
Provides examiners with audit aids (i.e. issue checksheet, pro forma Information Document Request, and standardized audit reports, etc.) which assist in identifying and addressing common rehab tax credit issues.


Research Credit Claims: Credit for Increasing Research Activities § 41
Publication Date: See table of contents for publication/revision date for the individual chapters, exhibits, and letters & forms. This guide provides guidance on the handling and evaluation of research credit claims.


Retail Industry (PDF 785KB)
Publication Date: 2/2009
Overview of the Retail Industry.


Sections 48A and 48B – Advanced Coal and Gasification Project Credits
Publication Date: 5/2009
Section 46 provides that the amount of investment credit for purposes of § 38 for any taxable year is the sum of the credits listed in § 46. Section 1307(a) of the Energy Tax Incentives Act of 2005, Pub. L. 109-58, 119 Stat. 594 (August 8, 2005), amended § 46 to add two new credits to that list: The qualifying advanced coal project credit, (section 48A) and the qualifying gasification project credit, (section 48B).


Split Dollar Life Insurance
Publication Date: 03/07/2005
Split-dollar life insurance arrangements can be a key feature of executive compensation packages. Over the years, the Service has provided limited guidance regarding the taxation of these arrangements. Beginning in 2001, transitional guidance on the valuation of split-dollar life insurance arrangements was provided in the form of notices and proposed regulations in anticipation of final regulations.


Stock Based Compensation
Publication Date: 02/04/2005
The Service has prepared a comprehensive audit techniques guide to assist examiners in evaluating stock-based compensation. Stock-based compensation generally consists of either the transferring of stock or the issuance of stock options to an employee or independent contractor.


Structured Settlement Factoring (PDF – 282KB)
Publication Date: 11/2006
Structured Settlement Factoring


Timber Casualty Loss(PDF – 611KB)
Publication Date: 04/2011
The purpose of this Audit Technique Guide is to provide guidance on conducting income tax examinations with a Timber Casualty Loss.


Veterinary Medicine (PDF – 495KB)
Publication Date: 4/2005
Overview of industry includes discussion of types of business entities (especially personal service corporation); cash vs. accrual method of accounting; and inventory vs. supplies.


Wine Industry ATG (PDF – 354KB)
Publication Date: 05/2011
The Wine Industry Audit Technique Guide is designed to assist examiners in their compliance reviews of both winery and vineyard operations.

These guides can be very useful whether or not you are a small business owner being targeted by the IRS for an audit. Is one of the guides on the list applicable to your industry? If so, taking a look at the audit guide may help inform you when you are preparing your return. The IRS provides a video here that explains why the provide the audit guides to the general public.

Becky points out that “as a business taxpayer, you may wonder what the IRS looks for when auditing a tax return within your particular industry.” She continues that “while ATGs are designed to provide guidance to IRS employees, they are also useful to small business owners and tax professionals who prepare returns.”

Just don’t think that you can rely on the what the IRS puts in their audit guides in the case of an audit by the IRS. If you are familiar with tax laws in the United States, you might recall that there is a hierarchy in how much weight is given to a particular source of authority. Some of the ATGs even put the fact that you cannot rely on the contents of the guide right up front, stating: “This document is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such.” Oddly, some of the ATGs leave out this part of the disclaimer.

 

If you are being audited, these ATGs will help provide insight into the approach that the IRS takes to particular issues. Keep in mind, however, that the IRS approach is not the law. Reasonable minds can (sometimes) take different positions on the same set of facts. That is what makes tax law so much fun! Whatever you do, never just take the IRS’s word for it. Seek professional tax advice.