USA IRS Audit

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How common is IRS auditing individual like the one below.
An individual who is a small business owner LLC and at the same time employed by a larger business in another state. In essence, this individual has multiple 1099s (from his single member LLC) and also has a W2 (as an employee of another business).
This individual has a high operating cost for his LLC consulting business which makes him operate at a loss.
As an example last year, he made about 90K income from his LLC (1099s), with about 110K of operating expenses (schedule C deductions - travel, equipment purchase and payment to other subcontractors) and made another 180K income as an employee (W2).
Expenses for operating the LLC for the last 3-4 years have been greater than income from the LLC (not adding the salary as an employee). This individual likes what he does despite the negative balance sheet from his LLC at the end of the year. So the wages as an employee supports his small business.

Does this scenario attracts more frequent IRS auditing.

Thank you in advance for your answer.
 

Drmdcpa

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Brewing a pot of coffee and sending an invite to the taxing authorities.

Hobby rules are in effect.

Also are you sure some of those expenses against LLC income do not belong against W2 income? I do not care but that is only one question on the taxing authorities' mind.
 
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This guy has so much expenses that can certainly be justified as business expenses.
Almost monthly oversea trip... to Europe, Japan, Dubai, Africa... expensive Hotel stays, car rentals for a whole month in a different state etc etc
 

Drmdcpa

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Do not care. Neither will IRS. Expensive trips abroad while invoking hobby rules again is brewing a pot of coffee and sending an invite to the IRS.
 
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You may be right about inviting the IRS.
Interesting, his tax returns for the last two consecutive years were audited and after extensive review, the auditor allowed additional expenses that were not included in his initial return, so he received extra cash...
Any idea if this yearly auditing will continue?

When do the IRS stop auditing a tax payer?
 

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