IRS Audit Techniques Guide Released for Examinations of Business Consultants

The IRS has released an audit techniques guide (ATG) for IRS examiners who are conducting examinations of business consultants. This market segment is rapidly expanding due to downsizing of many businesses, with the result that many former employees are turning to consulting as a occupation, in some cases providing services for their former employer. Alliances of business consultants with different areas of expertise facilitate the provision of advice to a client in varied business areas. The ATG is based on examinations of sole proprietors, corporations and partnerships completed by revenue agents. It is a tool to be used by examiners to assist in identifying frequent and unique issues associated with the business consulting industry. One part of every examination is the evaluation and documentation of the internal control of the business, which is important to determine the agent’s level of reliance on the taxpayer’s books and records. The ATG is designed to provide the examiner with information on each potential issue that may arise in an audit within the business consulting industry. Potential issues include income reporting, electronic software, bartering, shifting or assignment of income, doctrine of substance over form, tax years, travel, independent contractor vs. employee, meals and entertainment, personal service corporations, nonprofit activities and reimbursed expenses.