Tax time 2012: tips for businesses and individuals: with tax season right around the corner we turned to Jack Allgood, tax partner at Anton Collins Mitchell LLP for advice on tax issues in 2012.

• Author: Bronikowski, Lynn
• Position: EXECUTIVE edge - Interview

Q. Considering the state of the U.S. Treasury and the government's projected deficit spending, has the IRS stepped up the audit process?

A. Yes, clearly the IRS has increased the numbers of returns being audited. The IRS audits more small companies than big ones and the gap is widening - a policy that costs both the IRS and its targeted taxpayers. As you might imagine, per an average audit hour, the audit of large companies yields a significantly larger collection of tax dollars than audits of small companies.

Q. What areas is the IRS focusing on?

A. For starters, foreign reporting and international activities. In March of 2009, the IRS issued an internal memo to ensure examinations with offshore transactions and entities continue to be emphasized and receive priority treatment during the examination process.

Also, corporate reorganizations. Tax returns containing tax-deferred reorganization transactions are receiving increased attention. This is particularly true in the case of reorganizations involving an outbound change -- from the U.S. to a foreign country -- in place of an entity's legal organization.

Independent contractors also are being looked at. Whether a worker is an "independent contractor" or an "employee" has long been a controversial audit issue. For the most part, classification centers around the payer's right to "control and direct" a worker with respect to the job that is to be done and how he or she should do it. If the requisite control conditions are present, the worker should be classified as an employee.

Q. What should taxpayers do when they receive notification that the IRS wants to audit their income tax return?

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