IRS Audit Compliance Initiative Projects for 2012 (Part 1)

by Jim Buttonow, CPA; CoFounder and VP New River Innovation
Created:

The IRS regularly conducts national, regional, and local compliance initiative projects (CIPs) to study perceived areas of noncompliance.


Notable information: The IRS wants to identify and examine the returns of taxpayers who may be offsetting taxable income from activities they are not engaged in for profit.

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Not for Profit

Taxpayers targeted: Taxpayers reporting losses on Schedule C returns for consecutive tax years 2007, 2008 and 2009. Specifically:

  • Gross receipts less than $20,000 and
  • Losses of more than $20,000 above the gross receipts amount

Notable information: The IRS wants to identify and examine the returns of taxpayers who may be offsetting taxable income from activities they are not engaged in for profit.

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Passive Activity Loss Limitations: Real Estate

Taxpayers targeted: Individuals who file Schedule E with rental losses. Specifically:

  • Deductions of more than $25,000 in rental real estate losses without any other passive income on the return (excluding qualified real estate professionals) or
  • No 50% reduction of the $25,000 allowable passive loss amount when modified adjusted gross income (AGI) exceeds $100,000

Preliminary IRS results: A fourth extension for this program – originally developed in 2007 – was granted in September 2011. Initial exam results from 2009 yielded $7,684 per return.

Notable information: Most taxpayers identified in this CIP are W-2 wage earners with rental losses. The IRS is using only office audit resources for this project.

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Jim Buttonow, CPA, is Vice President of Product Development and Cofounder of the tax technology company New River Innovation. Jim's professional mission is to apply emerging technology to problems faced by tax professionals after they file.

Jim is a CPA and former IRS Large Case Team Audit Coordinator. He worked at the IRS for 19 years. Since leaving the IRS, Jim has represented many clients before the IRS. At New River Innovation, Jim is the chief architect of Beyond415, an award-winning technology for tax practitioners to efficiently handle IRS issues, notices and audits. Through Beyond415, Jim also develops and presents CPE series on IRS practice and procedure for issues that arise after filing, such as audits, notices and discrepancies. Jim regularly speaks on compliance trends and post-filing practice efficiency strategies for CPA and accounting firms.

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