IRS: We Have Our Reasons For Onsite Audits

January 8, 2004 (PLANSPONSOR.com) - There are darned good reasons why the Internal Revenue Service (IRS) prefers to conduct pension plan audits at the taxpayer's place of business, the IRS said.

>According to a CCH report, Preston Butcher, IRS employee plans examinations director, said auditors can make best use of their time if they can quickly get at documents where they are most likely to be stored – the company’s business headquarters. That’s particularly true, the IRS official said, since the source documents often suggest other questions requiring other documents at the business operations center. Examples of source material normally kept at the place of business include payroll records, personnel files, entity income tax returns and Forms W-2.

>Butcher asserted that pension professionals were less likely to be familiar with the company’s business details. Doing the audits at the firm’s home base also gave auditors access to personnel able to answer queries about the firms’ operational details.

>Finally, onsite audits give the IRS officers a chance to evaluate internal controls for plan operations and to assess whether information given to the pension professional by the entity is complete and accurate. If, for instance, the office manager misunderstands what is properly includable compensation, or what is considered a related business, this could adversely affect the accuracy of various operational tests without the pension professional being aware of the inaccuracies, the IRS said.

>Butcher said taxpayers might request that the audit be conducted after hours or elsewhere if they outline their reasons. If the agency agrees, it would still require a walk-through of the business premises.

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