The Internal Revenue Service is planning to conduct special audits of about 5,000 closely held businesses as part of a wide-ranging research program to help combat tax evasion and improve compliance. These audits, scheduled to begin later this year, will focus on returns filed by S cororations, IRS officials recently announced. With a typical S corporation, the income, losses and deductions flow through directly to shareholders, instead of being taxed at the corporate level.
These corporations "continue to be the single most popular corporate entity choice," the IRS said, and their total assets are huge. The total number of returns filed by S corporations for the 2002 tax year was nearly 3.2 million, according to an article by Kelly Luttrell, an IRS economist, in the latest issue of the IRS Statistics of Income Bulletin. That was up from about three million in 2001 and about 725,000 in 1985. Total assets rose 7.1% in 2002, to more than $2 trillion.
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