Salt Lake City UT Audit – Profile for S Corporations
A week ago I went to a Tax Seminar here in Salt Lake City UTÂ and one of the things I learned regarding S Corporations from one of the instructors was the following:
- S Corporations have a much lower audit profile than sole proprietorships. Â In a recent study, only .4% of all S Corporations were audited by the IRS compared to a much much higher percentage of sole proprietorships.
- This study was based on the fact that the owner was paid a reasonable and adequate wage out of the S Corporation.
I believe this is the case because the IRS views the sole proprietorship (Schedule C filer) as an unsophisticated taxpayer and thus they are prone to more errors, understatement of revenues and overstatement of expenses. Â They believe that to form an S Corporation is a step up in sophistication and thus those that do it are more prone to be the opposite of what was indicated above. Â Whether this approach is correct or not, I’ll let you decide, but this is an interesting finding none the less. (Salt Lake City UT Audit.)