Across the Nation: IRS Fast Track Settlement Program for Small Businesses
If your business is under audit, you may want to check out the IRS Fast Track Settlement (FTS) program for small businesses.
The IRS has recently rolled out its FTS program nationwide. The program was previously limited to only certain locations, such as San Diego, Laguna Niguel, and Riverside, California; Chicago, Illinois; St. Paul, Minnesota; central New Jersey; Philadelphia, Pennsylvania; and Houston, Texas.
The FTS program is designed to expedite case resolution.
The goal of the FTS program is to resolve audit issues within 60 days, (instead of months or years), yet preserve appeal rights. The program uses alternative dispute resolution (ADR) techniques to avoid lengthy litigation or a formal administrative appeal.
The FTS program for small business is modeled on a similar program for large and mid-size businesses (over $10 million in assets) that has been around for some time. The Small Business/Self Employed (SBSE) Division was originally launched in September 2006.
The IRS has made program details available on its website. If you’re interested in the program, consult your advisor to ensure you take the right steps to protect all of your rights.
Undergoing an IRS Audit
Contacting your advisor as soon as you receive your first communication from the IRS is a wise move. The audit process is highly technical and has firm deadlines. Failing to reply or respond within the given time frame could end up costing you the ability to challenge tax items.
Keeping good records and documentation throughout your business lifecycle is tremendously helpful when faced with an IRS audit. This is true for all parts or your return, but especially for items on the following portions:
- Schedule A (Itemized Expenses)
- Schedule C (Business Expenses)
- Schedule E (Supplemental Income)
On Schedule A (Itemized Deductions), the IRS will typically examine your travel, meals and entertainment expenses and your charitable contributions very closely. It also usually examines mileage and unreimbursed employee business expenses claimed on Form 2106.
Commonly examined issues on Schedule C (Business Expenses) include whether expenses were deducted in the correct year and whether gross receipts were fully reported. The IRS also looks at whether the ordinary-and-necessary and business purpose test has been met for claimed business expenses.
The issues on Schedule E that the IRS typically looks at include the proper reporting of rental income and expenses, and, whether rental depreciation was correctly calculated. Also it reviews limits on deductions, including those related to at-risk rules, basis computations, and passive activity losses.
Depending on your situation, the IRS FTS program could be extremely helpful in settling differences with the IRS more quickly. However, in some cases, more traditional routes may be more appropriate. Talk to your advisor today.