Are YOUR Clients Ready for an IRS Audit? Are You Sure? Really?

In the face of increasing audit rates for medium and large businesses, a KPMG survey of nearly 300 executives found that 40% stated that their company did not have formal plan for IRS audits--this being the case even though 40% of those surveyed believed that audit activity had increased for their firm. A combination of pressure caused by budget deficits to generate tax revenue and the IRS Issue Tiering system implemented four years ago were two of the reasons given for the IRS activity increase. KPMG executive Sharon Katz-Pearlman stated that tax directors, CFOs and corporate boards should be putting greater thought into the impact of audits, especially with new reporting requirements for uncertain tax positions just around the corner.

While the first line of tax preparedness needs to come from the chief tax officer, controller and client legal counsel; the tax divisions of medium and large CPA firms have an opportunity here--develop a tax audit preparedness strategy; then market this to their clients and perhaps even businesses which aren't their clients. Until the Internal Revenue Code is simplified and state and federal deficits brought under control (if such ever happens, by no means guaranteed), there will be every incentive for tax authorities to pursue tax deficiencies, whether real or perceived, with great intensity.