The Internal Revenue Service has begun a study to assess the reporting compliance of S corporations. The study, carried out under the National Research Program, will examine 5,000 randomly selected S corporation returns from tax years 2003 and 2004.  Created in 2000, the NRP is a comprehensive effort by the IRS to measure payment, filing and reporting compliance for different types of taxes and various sets of taxpayers.

"The use of S corporations has exploded," said IRS Commissioner Mark W. Everson in a statement. "The IRS needs a better understanding of what this means for tax compliance. This research is critical for achieving our strategic goal of ensuring that corporations and high-income individuals are paying their fair share."

S corporations are now the most common corporate entity.  In 2002, the latest year for which data is available, S corporation returns accounted for 59 percent of all corporate returns filed for that tax year. Two million S corporations reported net income of about $248 billion and 1.2 million S corporations reported net losses of about $63 billion.

Program officials expect the audits to begin later this year. The last reporting compliance study of S corporations involved about 10,000 returns from tax year 1984, prior to the law changes that spurred the growth in S corporations. The new NRP initiative will use a study approach designed to reach statistically valid conclusions regarding compliance behavior, while using a smaller sample of returns than in the past.

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