IRS Audit Alert
The IRS Releases a Comprehensive Guide for Audits of the Legal Profession
Periodically, the IRS performs in-depth studies of particular industries or types of transactions. From these studies the IRS produces audit guides that identify issues the Service wants its agents to focus on during an audit.
Recently the IRS released a comprehensive audit guide for the legal profession.
The audit guide specifically addresses the following areas:
- Unreported Income - Determine all payments are deposited directly into the business' operating account and not into personal bank accounts.
- Deferral of Income - review trust account funds to determine if deposits should be recognized as taxable income in the current period;
- Noncash Payments for Services - verify that stock or partnership interests received for services in lieu of cash payments are reported as income;
- Advanced Client Costs - determine proper year of deduction of cost advances.
Audit procedures called for in the audit guide can be quite intrusive. Attorneys may be asked to provide 1) detailed information relating to independent contractors, 2) detailed information about bartering for services, and 3) documentation of the proper reporting and disclosure requirements regarding receipts of $10,000 or more in cash.
One positive aspect of the Audit Guide is that it provides an advance warning as to what the IRS may look at during an audit. This allows a business to be proactive and arrange its business affairs in a manner that addresses audit issues before the audit begins.
If you would like to view the audit guide in its entirety, please visit the IRS website:
We will continue to keep you updated on the latest developments which may impact you and your business and will be happy to answer any questions you may have concerning the above. Please contact our Tax Manager Terry Martin or call 215-675-8364.
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