Ever wonder how IRS examiners know about different industries so they can audit various businesses? They generally do research about specific industries and issues on tax returns by using IRS Audit Techniques Guides (ATGs). A little-known fact is that these guides are available to the public on the IRS website. In other words, your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations.
Many ATGs target specific industries, such as construction, aerospace, art galleries, architecture and veterinary medicine. Other guides address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.
Issues unique to certain taxpayers
IRS auditors need to examine all different types of businesses, as well as individual taxpayers and tax-exempt organizations. Each type of return might have unique industry issues, business practices and terminology. Before meeting with taxpayers and their advisors, auditors do their homework to understand various industries or issues, the accounting methods commonly used, how income is received, and areas where taxpayers might not be in compliance.
By using a specific ATG, an IRS auditor may be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the business is located.
Updates and revisions
Some guides were written several years ago and others are relatively new. There isn’t a guide for every industry. Here are some of the guide titles that have been revised or added in recent years:
- Entertainment Audit Technique Guide (March 2023), which covers income and expenses for performers, producers, directors, technicians and others in the film and recording industries, as well as in live performances;
- Capitalization of Tangible Property Audit Technique Guide (September 2022), which addresses potential tax issues involved in capital expenditures and dispositions of property.
- Oil and Gas Audit Technique Guide (February 2023), which explains the complex tax issues involved in the exploration, development and production of crude oil and natural gas;
- Cost Segregation Audit Technique Guide (June 2022), which provides IRS examiners with an understanding of why and how cost segregation studies are performed in order for businesses to claim refunds related to depreciation deductions.
- Attorneys Audit Technique Guide (January 2022), which covers issues including retainers, contingent fees, client trust accounts, travel expenses and more;
- Child Care Provider Audit Technique Guide (January 2022), which enables IRS examiners to audit businesses that provide care in homes or day care centers; and
- Retail Audit Technique Guide (March 2021), which details tax issues unique to businesses that purchase items from a supplier or wholesaler and resell them at a profit.
Although ATGs were created to help IRS examiners uncover common methods of hiding income and inflating deductions, they also can help businesses ensure they aren’t engaging in practices that could raise audit red flags. For a complete list of ATGs, visit the IRS website.
How can I learn about what IRS auditors are looking for in my specific business industry?
The IRS uses Audit Techniques Guides (ATGs) when researching tax laws and regulations specific to an industry. ATGs are available to the public on the IRS website.
What are Audit Techniques Guides (ATGs)?
Audit Techniques Guides (ATGs) are publications created by the Internal Revenue Service (IRS) to provide guidance and insights into specific industries or tax-related issues. These guides are designed to assist IRS examiners in understanding the unique characteristics and potential tax issues associated with different industries or types of transactions. ATGs cover a wide range of topics, including but not limited to the construction industry, retail industry, cash-intensive businesses, and passive activity losses. These guides provide valuable information on common practices, accounting methods, industry trends, and potential areas of noncompliance that examiners should be aware of during an audit. It is important to note that ATGs are not official IRS pronouncements or regulations but rather educational resources that offer insight into how the IRS may approach certain tax issues during examinations.
How do IRS auditors use Audit Techniques Guides (ATGs)?
IRS auditors use Audit Techniques Guides (ATGs) as a resource to assist them in conducting audits. These guides provide detailed information on specific industries or areas of tax law and offer insights into common issues, potential audit risks, and examination techniques. By using ATGs, auditors can gain a deeper understanding of the industry-specific practices and transactions they are examining, allowing them to identify potential areas of non-compliance and conduct more thorough audits. The ATGs serve as a tool to ensure consistency in the examination process and help auditors make informed decisions based on relevant industry practices and applicable tax laws.