Link between company's proximity to IRS office and an audit

A study performed by four professors at a variety of U.S. universities has found that the closer a company is to an IRS office, the more likely it is that the company will be audited. This may seem obvious at first, but you would think that the Internal Revenue Service would use their uniform rules in a uniform manner -- thus negating any proximity effect when it comes to auditing businesses.

But that simply isn't true, according to the study. Again, the obviousness is pretty clear here. As one of the professors noted: "The intuition is that when two parties operate in close proximity there is more information on both sides," said Thomas Kubick of the University of Kansas. "I know more about you. We may not have met, but we have mutual friends. And people I know may have dealt with you."

Interestingly, though, taxpayers that were near an IRS office and were audited paid less in taxes than those who were further away. The study could be used by both the IRS and companies to better understand the tax implications of the laws -- and the human imperfections of enforcement and behavior.

Businesses face serious risks and consequences when they are audited by the IRS, but they also don't have to go into that fight alone. With an experienced legal team behind them, businesses can survive the serious tax action that the IRS is bringing against them.

Source: Accounting Today, "Companies near the IRS face a higher risk of audit," Roger Russell, March 21, 2017

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