Monthly Tax Tip: D.C. “Use” Tax and Hot Audit Topics

Author: Robb A. Longman Date: 10/31/2012

Categories: Tax Services

New D.C. Use Tax

The District of Columbia is now attempting to make certain that every sale of goods is subject to tax in D.C., if not paid elsewhere. The “use tax” will now be enforced for D.C. businesses on purchases that are not otherwise subject to sales tax. All items purchased by a business from a state that does not charge sales tax, or items purchased on the internet where a sales tax is not charged, must now be reported and a use tax assessed on those items. Businesses now must file a separate use tax return identifying these items commencing as of October 2012.

Hot Audit Topics with the I.R.S.

Although the IRS has never disclosed how tax returns or certain items within tax returns are selected for audit, there are items that can frequently be identified as being more likely to trigger an IRS audit. Some of those issues are currently:

  • Self-Employed taxpayers earning more than $1,000,000.00.
  • Off-shore transactions by U.S. taxpayers.
  • Properly classifying workers as employees and not as independent contractors.
  • Salaries being paid to the owners of S-Corporations and the losses of S-Corporation owners when they exceed the investment of the owner.
  • Partnerships that have been reporting losses repeatedly.
  • Failure to report the use of company cars by employees, especially “luxury” models.

Ensuring that you are properly prepared is the key to minimizing liability as a result of the audit. Taxpayers must keep all receipts of all business and personal expenses that are deducted on a tax return for a minimum of three years after the filing of the tax return. Taxpayers should properly file all forms and report all income and accounts as required by the IRS. Taxpayers should also be aware of their rights during an IRS audit and at any time when the IRS takes any collection activity.

We regularly consult with our clients to advise them and assist them on technical questions regarding their individual and business tax return filings to ensure they receive the advantages of the tax code. We also work with our clients and their accountants during an audit to ensure that the auditors are complying with the Taxpayer’s Bill of Rights and that the applicable tax laws are properly presented to the IRS auditor, appeals officer or in the U.S. Tax Court.