by Daniel Kittell | Accounting News, Fraud, IRS, News, Technology
By better ensuring that fraud indicators are recognized and properly investigated during field audits of individual tax returns, the IRS could increase revenue by an estimated $20 million a year, according to a report publicly released by the Treasury Inspector General for Tax Administration (TIGTA).
TIGTA’s audit was initiated to determine whether fraud is recognized and pursued in accordance with IRS procedures and guidelines during field audits of individual tax returns. They found that:
Of the 116 field audits closed between July 2009 and June 2010, twenty-six audits with fraud indicators were not recognized and investigated.
Each of the field audits involved unreported income and/or overstated expenses that resulted in the taxpayers agreeing they owed additional taxes of at least $10,000.
“Our review found that a combination of factors caused indicators of fraud to not always be recognized and properly investigated,” said Treasury Inspector General for Tax Administration J. Russell George. “Because of this, the IRS may be missing opportunities to further promote voluntary compliance and enhance revenue for the Department of the Treasury,” he added.
In its report, TIGA recommended that in order to assist examiners, the IRS should list in the Internal Revenue Manual (IRM) the following six categories of fraud indicators:
- Income
- Expenses or deductions
- Books and records
- Conduct of taxpayer
- Methods of concealment
- Income allocation
Each category, in turn, would contain specific examples of supporting behavior that range from:
- Omitting income
- Overstating expenses that are substantial
- Failing to keep adequate records in an attempt to hinder the audit
- Making false statements
- Failing to disclose relevant facts to an accountant
TIGTA recommended that the Director, Exam Policy, Small Business/Self-Employed Division:
- Enhance the job aid examiners are required to maintain in audit files related to documenting and investigating fraud indicators.
- Provide specific examples in the IRM for examiners and first-line managers to use when considering whether to consult IRS technical advisors when field audits of returns suggest possible fraud.
IRS officials did not agree with the first recommendation. They indicated that the job aid (Fraud Development Lead Sheet) was significantly enhanced in March 2011. In addition, IRS officials did not agree with the second recommendation, but stated that they do plan to take alternative corrective action. IRS officials will issue a memorandum to all examination employees emphasizing the importance of involving the technical advisors in audits.
As part of the review, TIGTA evaluated the enhanced Fraud Development Lead Sheet and continues to believe further enhancements to it would be beneficial.
TIGTA considered the alternative corrective action IRS officials plan to take and concluded that it is responsive to the recommendation. However, TIGTA encourages IRS officials to go beyond merely reiterating existing procedures in their memorandum by providing additional instructions and guidance to clarify when the assistance of a technical advisor should be sought.
IRS officials agreed that TIGTA’s recommendations have the potential to increase revenue by some $19.7 million over a year ($98.5 million over five years) from approximately 1,872 field audits.
Full Article: http://www.accountingweb.com/topic/tax/tigta-irs-can-take-action-recognizeinvestigate-fraud-indicators
by Daniel Kittell | Accounting News, Tax, Uncategorized
On Tuesday, March 27, the House of Representatives approved the JOBS Act with a vote of 380 to 41. The bill, which amends portions of the Sarbanes-Oxley Act, will now go to President Obama who has indicated he will sign the legislation.
The Jumpstart Our Business Startups (JOBS) Act has been touted as the latest attempt to revive and stimulate the economy, with its key element focused on applying a concept called crowdfunding to small businesses. Crowdfunding is a term used to encourage donations of money to help artists and non-profit ventures. One element of this program has been that often those who donate get some token gift in return for their donation.
Taking crowdfunding to the small business arena, investors will be able to put money into small businesses in exchange for a share of equity without the company needing to jump through all of the hoops normally required by the Securities and Exchange Commission (SEC) of companies that want to issue shares of stock.
This is excellent news for investors who would like to take part in initial public offerings (IPOs) that would normally only be offered to certain qualified institutional investors and for small companies looking to grow capital without having the restrictions that were previously in place.
Here are the key elements of the JOBS Act:
Small privately-held companies with revenue under $1 billion (or $2 billion if the company provides potential investors with audited financial statements) will be able to sell up to $50 million in shares as part of a public offering without having to register with the SEC.
New public company start-ups with revenue up to $1 billion are excused from having an outside audit of internal controls for five years.
Small Companies will be able to have as many as 2,000 shareholders (previous limit was 500) or 500 unaccredited investors without registering with the SEC. According to the SEC, an accredited investor is an individual with a net worth of over $1 million not including primary residence, has earnings of at least $200,000 – or $300,000 for joint earners – for the past two years, or is a general partner, director, or executive officer of the company issuing the security.
A crowdfunding investor is limited to investing in all private companies that are governed by this Act the lessor of $10,000 or 10 percent of his income if the investor earns less than $100,000 a year.
Businesses will be able to use advertisements to solicit new investors.
You should be talking to your clients about these points:
Because SEC registration is no longer required for these small private companies, the standard disclosures to investors will not be required. Companies that want to take advantage of these new rules should consider what types of disclosures they expect to make that will encourage but not mislead potential investors.
Companies considering using crowdfunding techniques need to develop controls to prevent potential fraud and abuse. An accountant is well-suited to help the companies develop these controls.
Remind clients that assurances to potential investors should include descriptions of the controls that will guarantee the safety of investments.
Websites already exist that provide a platform for companies to make themselves available for crowdfunding investments. Sites such as Launcht, Crowdfunder, 40Billion, MicroVentures, and many more help businesses reach a wide audience. Accountants can help their clients choose the right site for their business and also monitor progress and performance.
Clients who are interesting in investing in small companies using crowdfunding techniques should be aware of potential fraud and abuse. Encourage them to learn as much as they can about the companies, their products, their history, and their leaders, before investing. Also work with your clients to explain how they should oversee the investments they make.
Full Article: http://www.accountingweb.com/topic/cfo/obama-expected-sign-jobs-act-whats-it-you
