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What is “Fishing” and Does This Really Happen with the IRS and California State Tax Authorities?

Fishing is exactly what it sounds like – you are large enough to attract the attention of the IRS or the California BOE or FTD and this is a season of budget shortfalls and revenue problems. At the federal level, with big companies auditors have their own offices, and they audit everything your company does, looking through the returns of businesses and corporations seeking violations in either classifications or interpretations of tax laws. California’s FTB does essentially the same thing.

Most smaller companies (smaller than the Fortune 500) come onto the radar screen by falling outside of some “outlier” that the FTB has decided to investigate. Every year the FTB will re-configure their personnel and focus on some specific business issue because of a perceived volume of non-compliance. For a while we were watching a lot of audits for self-employed contractors. It didn’t matter if they were flooring contractors or general contractors, if they were a Schedule C and they’re a contractor they were getting audited. That’s an example where there was a lot of non-compliance and there were a lot of deductions taken that couldn’t be proved and it was like shooting fish in a barrel for the tax agencies.

The central point is to understand the value of running your business in such a way as to have systems that capture critical business metrics so that you can understand relational aspects of the cost of goods, labor, sales and installation and maximize the efficiency and profitability of your business. This detail is an excellent weapon to hold off government fishing expeditions and prevent tax agencies from separating you from your hard earned profits. Call Allen Barron today at 866-631-3470 to discuss your business model, efficiencies in operations and accounting and to prevent issues with the IRS and California tax agencies.