Business vs. Individual IRS Audits: Key Differences, Common Audit Adjustments, and How to Protect Your Financial Interests
What exactly is the IRS examining when it audits a business instead of an individual taxpayer?
The answer determines which return is at risk, what records matter, and whether an adjustment can create additional liability for owners, employees, or related entities. A business audit may test entity-level reporting, while an individual audit focuses more heavily on income, deductions, credits, basis, and personal financial activity. An experienced tax attorney in Atlanta can identify the legal theory behind the proposed adjustment before the taxpayer produces records or accepts the IRS position.
Business Audits Test Entity-Level Reporting
A business examination may test gross receipts, cost of goods sold, ordinary and necessary expenses, depreciation, payroll taxes, worker classification, shareholder compensation, loans, and related-party payments. S corporations face added exposure because the IRS may reclassify shareholder distributions as wages when shareholder-employees are not paid reasonable compensation. Worker reclassification can also create withholding, Social Security, Medicare, and unemployment-tax liabilities. A Georgia tax attorney should also determine whether partnership or pass-through adjustments can reach individual owners.
Individual Audits Test Income and Personal Tax Positions
Individual examinations often compare a return with Forms W-2, 1099, K-1, and other third-party reporting. The IRS may challenge unreported income, Schedule C expenses, investment basis, capital gains, rental losses, itemized deductions, and credits. An Atlanta tax lawyer should test whether each proposed adjustment is supported by the Code and whether the taxpayer’s records satisfy the applicable substantiation rule.
The Same Adjustment Can Create Different Tax Exposure
A disallowed business expense increases taxable income. A shareholder distribution may become wages and create employment-tax liability, while an individual basis adjustment can increase gain or eliminate a claimed loss. The Law Office of Max Benkel handles IRS audits and tax controversies for Atlanta taxpayers. Contact us today before an audit adjustment creates owner-level, payroll, penalty, or related-return exposure.
