Meet your evolving needs with three integrated business lines in one professional services firm.


Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.

Tax Watch logo

According to a report by the Treasury Inspector General for Tax Administration (TIGTA), 62 percent of the S corporation returns selected for audit were closed by the IRS with no recommended changes in fiscal year 2011.

Most S Corporation Audits Result in No Adjustments

  • 8/1/2012

Most S Corporation Audits Result in No Adjustments

The number of S corporation audits the IRS closes with no recommended adjustments is very high, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). IRS statistics show that 62 percent of the S corporation returns selected for audit were closed by the IRS with no recommended changes in fiscal year 2011.

“These results are troubling because, according to the IRS, a high no-change percentage means the agency is spending a significant amount of resources on unproductive audits and burdening compliant taxpayers with unnecessary audits,” said Treasury Inspector General for Tax Administration J. Russell George.

TIGTA conducted its review to determine whether the IRS’s Small Business/Self-Employed (SB/SE) Division examiners are conducting audits of S corporation returns in accordance with IRS procedures and guidelines. S corporations annually file Form 1120S, U.S. Income Tax Return for an S Corporation, although they generally do not pay any federal income taxes. Instead, an S corporation’s income, deductions, and other items are divided among and passed on to its shareholders, who are required to report the items on their individual income tax returns.

TIGTA did not identify any significant quality problems that would suggest the manner in which items are selected and audited substantially contributes to the no-change percentages. However, TIGTA believes that SB/SE researchers should explore the use of S corporation data files to determine if examiners are auditing the most productive returns. TIGTA also found that additional steps could be taken to strengthen controls over the return classification process in order to further minimize the risk of selecting returns that have limited audit potential.

TIGTA recommended that, as resources become available, SB/SE should:

  • Analyze S corporation data files to help identify additional productive returns for audit.
  • Revise classification guidelines to clarify that quality reviews need to be completed for each type of classified return.

In their response to the report, IRS officials agreed with TIGTA’s recommendations and stated they plan to take corrective actions.

©2012 CCH. All Rights Reserved.