Yes, the word strikes fear in every taxpayer’s heart. The process is not fun and every effort should be taken to lower your risk of a tax audit notice.
You may know someone who’s been through an IRS audit. You’ve at least heard that it can be a grueling, complex process. But how much do you really know about this potentially-unpleasant procedure? Here’s some of what every business owner should know.
What is an IRS audit?
In an audit, the IRS examines your company’s accounts and financial information. The agency’s intent is to make sure that your return is in accordance with tax laws and that you paid the correct amount of tax.
Audit subjects are selected in one of three ways:
• Random selection/computer screening
• Document-matching (W-2s or 1099s, for example, don’t match information claimed on the return), or
• Involvement of related returns (if one of your business partners, investors, etc. is audited, you may become a part of that audit).
How long does an audit take?
It depends on several factors, including the audit type, your ability to produce the requested documents, the level of complexity, the ease of scheduling meetings with all involved and your reaction to the audit’s results.
What records will I be asked to produce?
You’ll get this information in writing. Electronic records may be acceptable, but check with your auditor to make sure they’re in an acceptable format. Remember that you should be keeping copies of all tax-related documents for at last three years after you file a return.
What rights do I have in an audit?
Many. They include the right to:
• Be treated courteously and with respect by IRS representatives
• Receive explanations of the rationale for requesting information, how it will be used and what the ramifications of not providing it are
• Privacy and confidentiality
• Represent yourself or appoint an authorized representative, and
• Appeal findings that you don’t think are warranted, either through the IRS itself or the court system.
Can I do anything to avoid an audit?
Not if you’re simply selected randomly or you’re involved with an entity that is audited. But we can help you throughout the year as you manage tax-related accounting tasks. We’ll prepare relevant reports, be involved in business decisions that can have impact on your current return and help you keep an eye out for every possible legitimate deduction.
While we all prefer to avoid an audit, the reality is that being selected randomly happens. Our goal is to lower your tax obligation legally while minimizing the risk of being selected for an audit.
If you’d like our help, simply contact our Managing Partner, Andrew Brody CPA JD at 305-231-2150.
Canner Brody and Yan CPAs has been a trusted CPA Firm for over 65 years. Very few CPA Firms have been in operating for that long and have the depth of experience and expertise that our firm provides. We have several CPA’s on staff and our expertise includes international taxation, high net worth tax, IRS Tax Audits, real estate accounting, expatriate tax preparation, and forensic accounting.
