A tax audit isn’t a time to panic, it’s a time to prepare. Many small businesses are asked to supply back-up documentation to support deductions and business expenses, and if you keep good company records, a tax audit can be converted into a simple inconvenience.

The key is to prepare for your meeting with the tax auditor. It may be a local auditor, a state auditor, or a federal tax auditor from the IRS. Whatever the case, you want to be prepared with good information and documentation that supports the tax filing under scrutiny.

Here are some tips on how to help avoid trouble when faced with a business tax audit.

Ask For An Extension. Postpone your meeting with the auditor for as long as possible. Ask for an extension to gather together your records and other information required to demonstrate to the auditor that your business reported all income  and that you are, indeed, entitled to any deductions, credits or exemptions claimed.

Know what the IRS or other auditing agency wants. Anything from the IRS can be unnerving, so read the audit request once more. Have legal counsel read it if you’re confused about what the auditing agency really wants. In many cases, that letter from the IRS is simply requesting additional information. Don’t panic. Prepare.

Of the people and businesses who are audited, 75% of them face a correspondence audit, meaning you can mail copies of supporting documents. Make sure to send copies and keep the originals.

Go to the auditing agency’s office. Don’t have coffee and donuts in your place of business. If the auditor is coming to your office, you’re facing a field audit. If possible, ask that any discussions take place at the government agency’s office. If you are facing a field audit, delay it and hire a tax professional to help get your documents in order.

If they don’t ask, you don’t answer. If you have a tax professional or tax lawyer representing you, have him or her answer the auditor’s questions. NEVER offer information. If they don’t ask, don’t volunteer information. Say as little as possible during the audit without looking like you’re hiding something.

Get your paperwork in order. You may choose to hire an outside consultant to locate and organize your audit file. Provide only that information that the taxing agency asks for. Once again, if they don’t ask for it, don’t mail it in just to show how honest you are.

Know your rights under the law. For example, in most cases, your business has 30 days to respond to an audit letter. You’re entitled to representation. You can ask for an extension – even if the audit is just a day or two away. Be sure to read (and understand) IRS Publication 1 titled Your Rights As A Taxpayer.

If you’re being audited by a state or local agency, ask for a copy of audit guidelines and a booklet explaining your rights. Don’t allow your business to be bullied. You do have rights under law. Know your rights. Exercise them to your company’s advantage.

If you don’t like the results, you have the right to appeal. You can appeal the auditor’s decision if it doesn’t seem fair or just. There’s a standardized process for developing an audit report.

Contact the auditor if you’re confused about the examination report. Meet with the auditor’s supervisor. Keep kicking the case up the ladder until you get answers. If answers aren’t forthcoming, you may have to take the auditing agency to tax court – something to avoid at all costs because it’s a big cost for representation by a tax attorney.

An audit isn’t a reason to panic, but you should have your paperwork in order, back-up information from the company CFO or CPA, and if needed, get help from a tax lawyer.

Pay your fair share, but don’t be pushed around. Get help for an audit.

Get help for your business.

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.