Published on: February 5, 2018 Last modified: February 12, 2019

Does the IRS Target Immigrant Business Owners for Audits?

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    Does the IRS target immigrant business owners for audits? The answer should be no, but for foreigners and green card holders there could be more intense scrutiny. While common in states such as Texas and California where many business owners are immigrants, it can also occur in Michigan where an immigrant owns a gas station.

    The legislative calls to expand the authority of the IRS to take on some roles of US Immigration and Customs Enforcement (ICE) have largely gone nowhere. Added penalties for employers who hire undocumented workers, however, remain talking points on Capitol Hill. And an IRS audit that turns up employment verification issues could involve other federal agencies. Underreporting cash transaction is another problem that could lead to a lengthy audit process and hefty penalties.


    A refresher on Form I-9 verification

    An initial issue that any business must consider when adding employees is Form I-9. It is illegal to hire someone who lacks proper U.S. employment authorization. Failing to complete this form and keep it on file, exposes a business to fines. A first-time violation is up to $3,200 per worker. Subsequent violations come with stiffer fines.

    Because independent contractors are not employees, Form I-9 is not required when working with independent contractors. Misclassify an employee as a independent contract though and there are significant civil penalties. And it is still unlawful to hire someone unauthorized to work in the country even as an independent contractor.

    Owners of the business would generally not need Form I-9. But someone who works for a business must have a substantial ownership interest to be exempt from the I-9 requirement.


    Cash-intensive business

    In the top red flags for business audits, cash transactions come in right after significant business losses related to questionable expenses. This means that any convenience store, restaurant, liquor store or parking garage doing a significant portion of sales in cash, should expect IRS scrutiny.

    The IRS has a formula that calculates the amount expected amount of cash sales based on credit-card transactions. The Service is checking this behind the scenes and if/when out of line with estimates, it could prompt an audit notice.


    Whether you have recently received an audit notice or want to avoid one altogether, speak with a tax attorney about your concerns. If the audit process has already kicked off an attorney can handle all communication with the IRS on your behalf while seeking the best possible resolution.

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