M1, M3 cause of an audit?

[ILLMAS]

Does anyone know if the IRS picks a return for audit based on items on M1 & M3?  

[BHoffman]

Do you mean M-1 and M-2?  M-3 isn't commonly filled out unless the company is huge.

I had one SCorp field audit, triggered by a large amount of advertising expense that was valid.  The auditor wasn't interested in the Sch L, M-1, or M-2 except to see if the shareholders had basis to cover the distributions.  The result was no change.

I think the IRS will pick out a return for audit based on revenues and expenses reported.  I don't think they zero in on the Sch L, M-1, or M-2 to initiate an audit, but probably look at those items if the return is selected for some other reason.

[Lynn EA USTCP in Louisiana]

I have no idea.  Did you ask the auditor why the return was selected for audit?

 

[ILLMAS]

One of my friend consulted with me, I told him I was not aware an audit can be triggered by M1, M2 & M3 items solely and that I would ask around.  The return was triggered by other reason from prior years related to expenses.