About
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Careers
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Contact
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Services Industries Knowledge Center People

About Our Services

We offer tailored solutions — whether private company or owner; public or private fund, adviser or fund service provider; or Fortune 1000 enterprise. Learn how we can help you.

Learn More

Assurance Services

Employee Benefit Plan Audits Internal Controls Investment Company Audits Private Company Audits SOC Readiness & Compliance

Tax Services

Federal Tax Planning & Compliance High Net Worth & Wealth Transfer International Filings & Structuring Investment Company Tax State & Local Tax Tax Credits & Incentives Transaction Tax Planning

Advisory Services

Business Valuations Data & Insights Digital Finance Solutions IT Strategy & Implementation M&A Advisory Outsourced Accounting Solutions Risk Assurance & Advisory Transaction Services Turnaround & Restructuring

Our Industry Expertise

Our industry experience means you can find professionals who speak your language and bring earned insights to the table. Learn how we can help you.

Learn More

Key Industries

Digital Assets Investment Companies Manufacturing Private Companies Private Equity Real Estate & Construction Technology & Life Science
VIEW THE COMPLETE LIST

Knowledge Center

Our team wants to help your team stay up to date. Browse our thought leadership, events and news for insights and a point of view on business-critical topics.

Learn More

Insights

Browse valuable articles and publications our experts have written to help you and your organization answer key questions — and consider new ones.

Read Our Insights

Events

Join us in person and online for events that address timely topics and key business considerations.

Explore Our Events

News

Find out what is happening at Cohen & Company, from industry recognitions and growth updates, to where we are contributing to important media stories.

Read Our News
People
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Back to Insights

3 Steps to Begin Preparing for an IRS Audit

by Mike Kolk

April 20, 2022 Federal Tax Planning & Compliance, Digital Assets, Private Companies

With the April 18th tax deadline just behind us, it’s timely to note that filing a return is not the end of the story for taxpayers who have “their number” called for an IRS examination.

While in recent years there has been a severe staffing shortage at the IRS, followed by the perceived notion of a lower likelihood of being audited, that is all about to change. With a recent and much awaited budget approval, the IRS is undergoing a mass hiring initiative — potentially creating more capacity for agents to focus on examinations in addition achieving their goal of eliminating the agency’s back log of returns by the end of 2022.

And, as many can attest, there is nothing like a notice from the IRS saying you are being audited to strike fear into your heart. But with a little planning and insight, the process doesn’t have to be so scary. Below are a few tips to get you started on the right foot.

1. Understand How It Works

While you could be selected randomly for an audit, the IRS generally relies on a screening process. And that process is getting a technological upgrade, now using artificial intelligence (AI) to identify returns that have a higher likelihood of issues or “red flags.” Those higher risk returns are reviewed by an IRS representative who then decides if any warrant further review and, ultimately, which are audited.

2. Know the Trends

So which areas of your return are most under the microscope with the IRS? There are certain areas of tax that garner more attention and could trigger an audit. While these areas are moving targets each year, one of the hot button issues today surrounds cryptocurrency. With the addition of the question: ‘At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?’ on this year’s returns, we are likely entering the next new wave of oversight. The important thing is to be honest. While answering yes may flag the IRS to double check the capital gain or loss areas of your return, answering no, if it isn’t true, could come back to haunt you — as taxpayers with undisclosed foreign bank accounts painfully learned around a dozen years ago.

Looking ahead to 2022 tax returns, be aware that the sales thresholds for using popular apps such as Venmo, PayPal and eBay are changing — from $20,000 per year to $600 per year — and will likely result in more reporting requirements on your next return.

3. Prepare Early

The most important work to prepare for an audit should be done long before one is on the horizon. Meet with your advisers during your annual planning time to better understand what areas are black and white, and what may be gray — pre-identifying potential areas of exposure and responses in case you are selected for an audit down the road. This extra step will not only help you make informed decisions, but it can mean the difference between being prepared for a future audit and trying to answer questions you may not have seen coming.

 

Whether you are a business or individual taxpayer, it’s important to take the most appropriate legal position that suits your risk tolerance. And even if it comes under review, going through the process with a trusted advocate can make all the difference.

Contact Mike Kolk at mkolk@cohencpa.com or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.

About the Author

Mike Kolk, CPA, JD, MS

Partner, Tax
mkolk@cohencpa.com
330.255.4315

Related Insights

Article

The Intersection of Cryptocurrencies and Individual Taxation – Part I

Read More
Article

The Intersection of Cryptocurrencies and Individual Taxation – Part II

Read More

Sign Up for Our Emails & Events

Receive insights from our specialists in a variety of areas and timely information on upcoming events directly to your inbox as they go live in our online Knowledge Center.

Subscribe Today
Subscribe to our newsletter
About Contact Submit RFP Privacy Policy
LinkedIn Twitter Facebook
© 2023 Cohen & Company