My earlier comments and experiences with the current IRS project (which is what they are calling it) to audit refund claims dealt with individual returns (1040X).  I wasn’t aware whether or not the project also included corporations, which raised a dilemma for us a few months ago when a client wanted to carry a corporate net operating loss (NOL) back to recover some previously paid tax. Such a carryback should be a straight forward calculation, with nothing for IRS to need to examine in excruciating detail.  However, because of the current uncertainty, we opted to hold off the carryback and roll the loss forward instead. 

The other day I was speaking with an IRS auditor who is examining some 1040Xs I  had prepared and was among those who had told me of the IRS's current policy of auditing all amended returns claiming refunds.  When I told him that we had held off carrying back an 1120 NOL because of this situation, he said that was a wise move because they are also examining those. 

As I said earlier, I wasn't aware if the current IRS attack on amended returns included 1120s.  Now I know and am glad that we held off doing one for my corp client. 

While an NOL carryback or over sort of works its way out and is more of a timing issue as to the tax savings, with the other kinds of things that create most amended returns, such as overlooked deductions, not being able to claim them on an amended return means they are lost forever.  It’s a classic use it or lose it situation.

I wasn’t given any idea of how long this current IRS project will continue.  However, I was given a heads up on their next project, extensive audits of pass-through entities, such as partnerships, S corps, LLCs, and trusts, which will also trace each item to the owners’ tax returns.  While checking the owners’ tax returns, auditors will also almost definitely fish around for other things to mess with. 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/14/2005 11:56:00 AM Send this post: