The IRS recently surprised tax experts by issuing a new version of its stock compensation auditing guide, which had not been updated since 2015. Developed as an internal manual for IRS employees, it also offers businesses a helpful window into what IRS agents examine in audits related to all types of equity compensation.
Depending on what IRS examiners find, an audit of a company can lead to individual audits, and maybe even amended personal tax returns, for its executives and employees. It’s a heads-up on stock options, restricted stock, restricted stock units (RSUs), stock appreciation rights (SARs), phantom stock, and employee stock purchase plans (ESPPs) for anyone who has these benefits or advises clients with them. Professionals and taxpayers alike can thus benefit from reviewing the guide to avoid pitfalls and tax situations that could trigger a dreaded IRS audit—the worst of which has been vividly described by tax attorneys as “an autopsy without the benefit of death.”