WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby Who is Afraid of the IRS? One of the more nerve-racking aspects of taxes for many drilling business owners and managers is the possibility of being audited. Surprisingly, the Internal Revenue Services’s (IRS’s) own figures reveal that, in general, only one or two percent of all taxpayers actually have their returns audited each year. However, once a large and inefficient federal bureaucracy, the IRS is changing to become more streamlined and, most importantly, catching more tax offenders. The IRS enforces the tax law in a number of ways; the more common methods include correspondence (examination by mail) and field (face-to-face audit) examinations. According to the latest figures, the majority of audits conducted during 2017, 70.8% were via correspondence. The remaining 29.2% were field audits. Of the total of all audits, almost 34,000 resulted in additional refunds totaling more than $6.6 billion. Agents in back offices are being replaced by computers with complex algorithms which cast a wide net, one that pulls many law-abiding people into the chaos of an audit. Any drilling business owner or manager who hopes to survive and thrive under the new algorithm-based IRS, should follow a few guidelines. Many drilling professionals, even those with no intent to commit fraud, often fall short when it comes to docu- mentation and paperwork. The IRS appears increasingly determined to find and audit these businesses. Once sent only to those suspected of fai l ing to comply with the tax laws, Information Document Requests (IDRs) are being sent out in record numbers as a screen- ing tool. Even if the drilling operation or business pays its taxes dutifully, it may be penalized for lacking documentation. After all, the law requires every taxpayer to retain the records used when prepar- ing the tax returns. Those records gen- erally should be kept for three years from the date the return is filed. Unless or until the drilling company agrees wi th the IRS, the appeals process remains open. Most important- ly, from the initial screening for accura- cy that each return receives, up to the final appeal has been exhausted, mis- takes in the favor of the taxpayer are discovered in about 25% of all cases. Honesty and clarity go a long way toward preventing, dealing with, and surviving an IRS audit. Naturally, every drilling professional and every drilling operation and business should have a strategy for avoiding audits, as well as for dealing with an IRS auditor. A fall- back position should those strategies fail, should also be in place. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com 17 WorldWide Drilling Resource ® OCTOBER 2018