Small Business Audit - TIGTA

The Treasury Inspector General for Tax Administration (TIGTA) audit looks at the filing characteristics and examination outcomes for small business corporate returns during the period of 2005 through 2009. The number of small business corporate income tax returns processed annually by IRS declined 7%, from some 2.2 million to approximately two million, the Treasury Inspector said in an audit that was recently released. “One factor that may be contributing to the modest decline in corporate return filings is the popularity of organizing a business as a partnership or S corporation, which allows the partners and shareholders of these entities to avoid double taxation on business profits,” TIIGTA said. Citing an IRS estimate, the audit noted that the number of partnerships will increase by 49% and the number of S corporation filings will grow by 39% between 2006 and 2014. The audit found that examiners from the Small Business/Self-Employed Division closed one of every three corporate return examinations in fiscal year 2009 without recommending any adjustments. This suggests that a managerial review might be appropriate, TIGTA observed. “Examinations that result in no change to the tax reported can result in an inefficient use of limited examination resources and place an unnecessary burden on compliant taxpayers,” TIGTA said.