Large Business, Small Business Tax Audit, Individual Tax Audits
The IRS has three main types of audits:
Large Business and International
The Large Business and International Section of the IRS (formerly the LMSB – Large Mid-Sized Business Section) is attacking businesses with assets of $10 million or more. Usually, the IRS comes in with a team of auditors. Your business should have its own team, led by the tax attorney, who will work with your CPA and in-house controller or financial manager. As soon as you receive the IRS audit notice, also called an “Information Document Request,” immediately call your Tax Lawyer.
The IRS plans to expend 18% fewer staff hours auditing large businesses with assets of more than $10 million in fiscal year 2013 (which ends Sept. 30) than it did in the financial year of 2011. These lower numbers do not take into account the effects of budget cuts that resulted from the sequester.
Small And Mid-Sized Business Audits
Just because your business is classified as a “small business” does not mean the IRS Audit cannot be a brutal attack on the very survival of your business and financial existence. One of the first things the auditor, called the “revenue agent,” will do is to try to convince you to talk and conduct the audit without a tax lawyer. That is a huge mistake! How the audit is conducted determines the outcome. Don’t expect the tax attorney to somehow magically correct the mistakes on Appeals or in Tax Court.
Note: The IRS has increased mail audits of small businesses. The auditors are not revenue agents. They have much less training than typical Revenue Agents and they make the audits much more difficult because they do not understand business. These minimally trained people are especially difficult to work with, and they rarely understand business.
Wealthy Individual Audits
The IRS has created a specialized audit group known as the global high wealth industry group. This audit group attacks wealthy taxpayers with complicated financial arrangements. These rigorous probes emphasize hedge-fund managers and other investors it suspects may be trying to evade taxes. Included in this group are individuals with asset protection trusts, royalty and licensing agreements, revenue-based or equity-sharing arrangements, private foundations, privately held companies and partnerships. The IRS auditors are specially trained and highly experienced. They conduct the audits in the same fashion as a large business audit.
Have You Received A Notice From The IRS?
Did you receive a letter or IRS notice? Is it a certified letter? STOP!!!
Do not call or contact the IRS. Anything you say will be used to hurt you and your business. If you have not filed tax returns and the IRS asks, “Did you know you had to file tax returns?” If you answer “yes,” you have just admitted to a federal crime!
If you are asked:
- “Where do you bank?”
- “Where do you work?”
- “Do you have any credit cards?”
All of these questions are designed to get information so the IRS can wipe out your bank accounts, levy your wages and take your assets.
If you get a notice from the IRS, please call Ronald J. Cappuccio J.D., LL.M. (Tax), at 856-665-2121.
IRS Audit Notice
If you receive a letter from the IRS asking you to call for an audit, immediately call your tax attorney. Some audits are minor and based upon simple calculation errors or inadvertent exclusions of 1099s. Most audits, especially for business owners, can be big trouble. Before you respond, your tax attorney should review the notice and the entire situation. Nothing you say to the revenue agent or tax examiner (what the IRS calls “auditors”) can help.
IRS Letter 5043
The latest attack on small business owners is letter 5043. This letter states that you have received a disproportionately large amount on your 1099-K forms for credit card sales compared to total income. The IRS thinks you are hiding cash. The responses must be timely and carefully crafted to prevent a full IRS intrusive audit.
Don’t Face The IRS Alone
Please seek legal advice if facing an IRS audit. You can contact Ronald J. Cappuccio J.D., LL.M. (Tax), by calling 856-665-2121 or by sending an email.