Kiritsis & Associates


3 Reasons S Corps May Have More Tax Audit Risk. . --  Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

Not all S Corp elections are made and/or treated equal, oftentimes by tax auditors.

1. Separate tax return filing. Its separate tax return filing could be a fabulous trait in reducing a taxpayer's audit risk. But, as always, there is a caveat; here, the caveat is the separate tax return must file out correctly and accurately. If an S Corp tax rate is filed wrongly, then every shareholder's tax return may be subjected to IRS scrutiny.

2. More rigid income tax allocation. The tax authorities are constantly monitoring (for annual tax reporting compliance purposes) if the salary of shareholder salary is too low, or if shareholder capital type distributions were too high.

3. More paperwork required. S Corps have more formalities and paperwork that may need to be submitted to federal tax authorities.  More paperwork could mean more opportunity for tax reporting errors, mistakes, and/or missed filing deadlines, which in turn, are a red flag, which potentially, lead to a tax audit. 


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