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Red flags on your business tax return that may trigger an IRS audit

Of course when it comes to the infamous "red flags" on a business return we have all the usual suspects found on everyone's returns, wrong name, no signature, forgot SS number, etc. and the dreaded mathematical errors. These are simply part of the "nature of the beast," with so many returns and so much data, you are bound to have this kind of error problem.

Since the end of the "cold IRS war" in the late eighties, when the "number police" ran amuck, traumatizing our nations citizens for these simple mistakes, nowadays, unless they are flagrant, these are handled with simple corrective forms and some even over the phone. There are however new guidelines, much more sophisticated and in most cases, very accurate in "catching" true greedy tax evaders.

The IRS does not have a little book of "red flags." But they do have endless computer based studies on "typical" businesses and the averages of business activities. They call them "trends and statistic reports." These reports act as a guideline for IRS employees who are charged with scrutinizing business returns. More pointedly, the IRS has a highly funded, inside schooling program that is turning their employees into sophisticated tax form machines. These folks have business tax averages and form requirements embedded in their knowledge banks and can quickly spot inconsistencies on a business return. Most of these same reports used by IRS employees are available to the public, and are even part of many business tax software programs for you to use. You can find them at the IRS's web page; http://www.irs.gov/businesses/ small/industries/index.html

Once there you will find a short list of industry specific basic businesses from agriculture and real estate, to online auctioneers and entertainment. Each category when entered will have a list of subcategories for each business entity. There you will find everything from details of cases of individuals who were found guilty of tax evasion to in depth studies and reports on how to succeed without problems (red flags) on your business tax returns. There is even an in depth industry specific, "Audit technique guide" to study up on, what triggers an audit in your industry, and what happens once an audit is decided upon.

Here is an example of how these "trends and statistic reports" work and how they are taught. Take a small concrete pouring business. The IRS has years of averages of all the businesses falling

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