IRS special department (loans from/to shareholder)

[ILLMAS]

Met with an IRS agent today, she mention to me that the IRS has a special department that monitors preparers that have a large number (trend) of tax client with due from/due to shareholders loans. What the department does is they ask you for your client list, select a couple, then they verify your work-papers for due from/due to shareholder to make sure you are doing due diligence and asking questions and documenting things like, when is the loan going to be paid back, is the corporation charging interest, is corporation paying personal expenses etc..... Your clients actions can now affect you to.

MAS

[Guest Taxed]

Is IRS saying that is the tax preparers responsibility to audit. " when is the loan going to be paid back, is the corporation charging interest"

I would say it is none of the tax preparers business if a corporation is charging interest or when a business loan is going to be paid back. The coropration should have them documented in the corporate minutes.

I don't understand what the IRS wants us to do? If there are certain mandatory due diligence then do a EIC type due diligence form that is attached to each 1120 return.

[Jack from Ohio]

The more they can push on us, the less they have to do. I want my bonus for being an unpaid IRS auditor!!!

[ILLMAS]

This how I see it, if you don't have any documents in workpapers supporting your clients loans, then your client doesn't have them either. And what I don't like about this is, that if you have one bad apple in your client list, this can open a can of worms. Note to self, pass on clients that have shareholder loans documented or not

I think these two articles sum up what the IRS is looking for:

http://www.americanbusinessmag.com/2010/03/ensuring-the-validity-of-shareholder-loans/

http://www.borelassociates.com/topics/Shareholder%20Loans.pdf

[Guest Taxed]

Note to self, pass on clients that have shareholder loans documented or not

I agree or increase fees for the aggravation.