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Saturday, December 17, 2005

Corporate Return Audit Triggers

Potential audit triggers for corporate tax returns from a former IRS field agent:

Refunds in excess of $2 million. Congress' Joint Committee on Taxation must review all refunds over a prescribed amount, arising from net operating loss carrybacks and credit carrybacks. In 2005, the prescribed amount was $2 million. Agents are required to contact such corporations and request information to verify the accuracy of the refund, as well as its origin .

Balance sheet "loans to shareholders" (the IRS may try to recharacterize these as "constructive dividends") .

Agents check for Schedule M-1 line items such as travel and entertainment expenses. The absence of such Schedule M-1 line items could trigger an audit.

Schedule M-1 line items such as "tax-exempt" or "tax-deferred" income could also be a red flag.

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