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Tax Audits Rise; Blame Hungry Governments

o Roy Harris
15.11.2011 kl 01:43 | CFOworld (US)

Tax-audit activity has increased in both federal and state jurisdictions in the past 12 months, and most companies expect the trend to continue through the next year, according to a survey of corporate tax executives.

 

Tax-audit activity has increased in both federal and state jurisdictions in the past 12 months, and most companies expect the trend to continue through the next year, according to a survey of corporate tax executives.

They blame the revenue pressure on governments of all kinds, and their need to make the tax system more productive.

The survey of 890 tax officials, by KPMG LLP, showed that 61% of respondents had seen federal tax dispute activity climb, while 37% said the number of state tax audience in their jurisdictions had increased.

Meanwhile, more than two-thirds of respondents (67%) expect federal tax dispute activity to increase, and more than half (53%) expect more state tax audit activity.

Cure for Budget Shortfalls

"Tax directors, CFOs, and corporate boards should keep the increased likelihood of an audit by taxing authorities high on their priority lists as it presents a significant tax risk," according to Frank Lavadera, principal-in-charge of KPMG's Tax Dispute Resolution Services Network. "Federal, state and local governments are all taking extra measures to ensure that they are not leaving any corporate tax revenue on the table as many are facing budget shortfalls."

He added, "It is clear that taxing authorities are demanding greater transparency and imposing more complex reporting requirements, while the IRS and various states are adding tax audit personnel to increase the number of exams they can conduct."

Foreign and Domestic

KPMG cited Treasury's inspector General for tax administration as saying that IRS enforcement revenue had increased by 18%, to $57.6 billion, in fiscal 2010, with corporate examinations rising 5%.

The company recommended that companies make sure policies and procedures are in place to prepare them for audit notifications. "Companies should regularly review their accounting methods, tax returns, risk assessments, and other processes," said Sharon Katz-Pearlman, principal-in-charge of KPMG's Tax Controversy Services practice. That involves taking "time to identify the documents, people, time and resources that might be needed to handle a potential tax audit."

Also in the survey, about one quarter of respondents said they expected regulators from non-U.S. jurisdictions to increase their tax audit activity over the next 12 months, while 29% believe such activity will stay the same. Over the past year 17% indicated that foreign tax dispute activity had increased at their companies, while 20% saw no change.

Keywords: Business Management  
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