Make sure your Business is in Compliance with Tax Laws by Using ATGs

Have you ever wondered how IRS examiners stay up to date on industry trends so they can audit a wide range of businesses? Typically, they use IRS Audit Techniques Guides (ATGs) to conduct research on certain industries and concerns related to tax returns. It is a little-known truth that the IRS website makes these guides available to the general public. That means your company can utilize these same tools to learn what the IRS considers to be compliance with tax laws and regulations.

Many ATGs target specific industries or businesses, such as construction, aerospace, art galleries, architecture and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.

How ATGs are Used to Help With Compliance With Tax Laws

All varieties of enterprises, as well as individual taxpayers and tax-exempt organizations, must be examined by IRS auditors. There may be specific industry challenges, business processes, and language associated with each type of return. Auditors do their homework to learn about different industries or concerns, the generally used accounting techniques, how revenue is collected, and areas where taxpayers could not be in compliance before meeting with taxpayers and their advisors.

When reported income or expenses don’t match industry norms, an IRS auditor may be able to use a particular ATG to uncover anomalies in the business’s local area or to reconcile differences.

For example, one ATG focuses specifically on businesses that deal in cash, such as auto repair shops, car washes, check-cashing operations, gas stations, laundromats, liquor stores, restaurants, bars and salons. The “Cash Intensive Businesses” ATG tells auditors that “a financial status analysis including both business and personal financial activities should be done.” It explains techniques such as:

  • How to examine businesses with and without cash registers
  • What a company’s books and records may reveal
  • How to analyze bank deposits and checks written from known bank accounts
  • What to look for when touring a business
  • Ways to uncover hidden family transactions
  • How cash invoices found in an audit of one business may lead to another business trying to hide income by dealing mainly in cash

Auditors are obviously looking for cash-intensive businesses that underreport their cash receipts, but how this is uncovered varies. For example, when examining a restaurants or bar, auditors are told to ask about net profits compared to the industry average, spillage, pouring averages and tipping to ensure compliance with tax laws.

Updates and revisions

Some guides were written several years ago and others are relatively new. There is not a guide for every industry. Here are some of the guide titles that have been revised or added recently:

Learn the red flags

Although ATGs were created to help IRS examiners uncover common methods of hiding income and inflating deductions, they also can help businesses ensure they aren’t engaging in practices that could raise audit red flags. For a complete list of ATGs, visit the IRS website here. And if you have questions about your business or compliance with tax laws and regulations, please contact us.

This post was originally published on 7/24/2019 and updated on 8/31/2021 and 10/10/2023.

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