What Can Trigger an Automatic IRS Audit?

Published on 02 January 2014 by in News

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Here’s an interesting tidbit that was uncovered at last November’s 2013 AICPA Forensic & Valuation Services Conference. IRS audits can be triggered when the same firm does a client’s tax work and valuation work. It was indicated that IRS agents in some areas will pull an estate and gift tax return that is prepared by the same firm that prepares the attached valuation report. A poll of attendees at the conference indicated that approximately 60% of CPA firms that have qualified business appraisers on staff regularly provided both valuation work and tax work to the same client. Thus, to help mitigate client risk, advisors may want to make sure that the client hires a qualified business appraiser that does not work for the CPA firm that is preparing the gift tax or estate tax return.

 

John G. Mack, ASA, MCBA, ABAR – Nationwide Valuations – (303) 496.0643 (direct) (303) 586.4554 (fax)
john@nationwidevaluations.comwww.nationwidevaluations.com

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Estate of John F. Koons III, Petitioner vs. Commissioner of IRS, T.C. Memo 2013-94, Filed April 8, 2013.

The Facts:

The decedent, John F. Koons, III, died on March 3, 2005. Mr. Koons served as the president and CEO of Central Investment Corp. (“CIC”). CIC was a bottler and distributor of Pepsi soft drinks and was in the business of selling food and drinks from vending machines. Mr. Koons was CIC’s largest shareholder, owning a 46.9% voting percentage interest and a 51.59% non-voting percentage interest. Mr. Koons’ children also owned, directly and indirectly through trusts, substantial portions of the remaining CIC interests.

CIC and PepsiCo, Inc. filed lawsuits against each other in 1998 regarding the manufacture and sale of PepsiCo products in CIC’s established territories. By December of 2004, [...]

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