S Corps. under scrutiny.

• Author: Laffie, Lesli S.
• Position: FROM THE IRS

According to IRS Associate Chief Counsel (Income Tax and Accounting) Robert Brown, the Service is intensifying scrutiny of S corporations as part of its program to measure tax compliance in various economic sectors. The agency's National Research Program is already partway through a pilot study measuring reporting compliance among partnerships and S corporations. A full-scale study of income reported by S corporations is expected to start in October 2005.

Statistics show that, apparently, business income is the largest portion of underreported income contributing to the tax gap. Because flow-through entities are the second largest entity type, the IRS is likely to continue its focus in this area.

According to Brown, S corporations are now the largest business entity type in the U.S. Congress has suggested that the agency take a closer look at compliance in this growing area.

Size and scope: As part of the forthcoming study, the IRS's Small Business and Self-Employed Division will examine 4,700 S corporation returns, while...