When preparing for a business audit, an IRS auditor references a handy guide called an IRS Audit Techniques Guide (ATG). An ATG provides information on a specific industry and reviews potential issues on the taxpayer’s return. These ATGs are available to the public on the IRS website, giving business owners insight into what the IRS is looking for in terms of compliance with tax laws and regulations.
Many ATGs target specific industries or businesses, such as construction, architecture, business consulting, entertainment and auto dealerships. Others address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.
IRS auditors need to examine different types of businesses, as well as individual taxpayers and tax-exempt organizations. Each type of return might have unique industry issues, business practices and terminology. Before meeting with taxpayers and their advisors, IRS examiners do their homework to understand the various industry issues, the accounting methods commonly used, how income is received, and areas of potential incompliance.
By using a specific ATG, an auditor may be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the business is located.
Additions and Updates
There is not a guide for every industry, and some guides are several years old. Here are some of the guides that have been updated or added this year:
• Retail Industry (March 2021),
• Construction Industry (April 2021),
• Nonqualified Deferred Compensation (June 2021), and
• Real Estate Property Foreclosure and Cancellation of Debt (August 2021).
Although ATGs were created to help IRS auditors 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.