Is the IRS Auditing Your Business?

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First, make sure you really received an audit notification. The IRS will notify you by mail. The IRS does not notify taxpayers about audits by a phone call or through email. If you do get an email saying you’ve been selected for an audit, it’s likely fraudulent.

If you’ve determined that you’re definitely getting audited, your next step is to learn what’s involved. What exactly is an audit, anyway? According to the IRS, an audit is “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is substantially correct.”

That’s it. It’s an audit — not an arrest and not a trial — so don’t panic. Contrary to popular belief, an audit doesn’t automatically mean you made a mistake. Yes, an inconsistency can trigger an audit if there’s a discrepancy between what’s on a tax form and what you actually reported, but the IRS may choose to audit a taxpayer based on random selection or a statistical formula.

An audit may be less intrusive than you feared. For example, an audit could be conducted entirely through the mail, though in some cases it may be at an IRS office or the taxpayer’s home or place of business. Not all audits result in owing money — your audit may lead to no changes at all.

Both businesses and individuals may be audited — even sole proprietorships — and there may be some differences in how they are handled.

One thing that virtually all audits have in common, however, is access to records. The IRS will provide you with a written request for the documents it wants to review. Did you deduct business expenses or make some substantial charitable contributions? You will need to show the IRS some receipts. The good news is that in many cases the IRS will accept electronic records.

What Happens Next?

There is no typical length of time for an IRS audit, but if you have your records readily available and cooperate fully and quickly, you increase your chances it will be as brief and painless as possible.

At the end, the IRS may determine that you owe more money. At this point, you can pay it — or you can appeal. The audit does not have to be the end of the road. There is a substantial appeal process and a long and expensive court trial may not be necessary.

The important thing to remember is that you don’t have to go it alone! Your accountant can work with you throughout the audit process, including any appeals. The key thing is to call us as soon as you receive notification about your audit, and we will work through the details and help you gather any records you may need.