As a small business owner, receiving notice of an IRS audit can be nerve-wracking. However, an audit doesn’t mean you’ve done something wrong. It’s the IRS’s way of verifying that the information on your tax return is accurate. While the process can be intimidating, knowing what to expect and how to respond can make a big difference.
Why Was Your Business Selected for an Audit?
The IRS uses various methods to choose businesses for audits. Some common reasons include:
- Unusual Deductions or Expenses: Claiming deductions that stand out compared to others in your industry may trigger an audit.
- Discrepancies in Reporting: If the numbers on your tax return don’t match the information reported by third parties (like 1099 forms), the IRS may want clarification.
- Random Selection: Sometimes, audits are chosen at random as part of the IRS’s compliance checks.
What to Expect During an IRS Audit
There are three types of IRS audits:
- Mail Audits: The IRS sends a letter requesting specific documents to verify certain items on your return.
- Office Audits: You’ll need to bring your records to an IRS office for review.
- Field Audits: An IRS agent visits your business to examine your records and operations on-site.
The type of audit and the issues under review will determine what the IRS asks for. Commonly requested items include receipts, invoices, bank statements, and payroll records.
Steps to Take if Your Small Business Is Audited
- Read the Audit Notice Carefully
The audit notice will explain why you’re being audited and what the IRS wants to review. It will also include a deadline for responding. Make sure to follow these instructions closely. - Gather Your Records
Organize the documents the IRS has requested. Providing complete and accurate information is essential. If you can’t find a specific record, consider whether there are alternative ways to verify the expense or income, such as bank statements or email confirmations. - Do Not Provide Extra Information
Stick to what the IRS has asked for. Volunteering additional documents or details could complicate your case or lead to further questions. - Stay Calm and Cooperative
Audits can be stressful, but staying calm and professional is crucial. Be polite and cooperative with IRS agents, as hostility or non-compliance can escalate the situation. - Work with a Tax Attorney
Navigating an audit can be complex and time-consuming. A tax resolution attorney experienced in IRS audits can guide you through the process, help you prepare your documents, and represent you during meetings with the IRS.
What Happens After the Audit?
Once the audit is complete, the IRS will issue a determination. There are three possible outcomes:
- No Change: The IRS agrees with your return, and no further action is needed.
- Agreed: The IRS finds discrepancies, and you agree to pay additional taxes or penalties.
- Disagreed: If you disagree with the IRS’s findings, you have the right to appeal or take your case to tax court.
Protect Your Business During an Audit
An IRS audit doesn’t have to derail your business. By staying organized, responding promptly, and working with a knowledgeable tax attorney, you can navigate the process and minimize any potential impact.
If your small business is facing an audit, consulting a tax resolution attorney is key. If you’re facing an IRS audit, you have a legal issue, and the experienced team at McCauley Law Offices can help. We specialize in helping business owners resolve tax issues and protect their operations.
Call us today for a free consultation!
