Addressing Small Business Audits Successfully
IRS Audits Are Attacks Against Your Business!
IRS Revenue agents, auditors, Revenue Officers and collectors are your adversary. They are from the government and they are not here to help! First, if the IRS comes knocking at the door, do not let them in!
An IRS audit can result in big tax increases, tax penalties such as negligence penalties, late filing penalties and late payment penalties. The Internal Revenue Service then adds on interest on the tax increase and penalties! Big increases in tax dollars owed and even claims of civil tax fraud are the potential result of a mishandled tax audit.
What are the steps in winning the audit:
- Engage a tax attorney, in addition to your accountant or CPA to represent you during the audit process. IRS auditors, known as Internal Revenue Agents, and their criminal counterpart, CID (Criminal Investigation Division) agents have extensive training and education. Without the assistance of a qualified tax lawyer before the audit even starts, a taxpayer is starting behind the IRS professionals.
- Defer all of the Auditor’s questions to your tax attorney and accountant. Many of the Revenue Agent’s questions are designed to trick you into revealing unnecessary details that can cost you big dollars. Let your tax lawyer protect you by filtering the questions and answers.
- Gather your accounting records and all tax returns for the years being audited. If your tax attorney can preview the business and accounting records in advance of the audit, it is easier to formulate a successful challenge of the IRS’ audit.
IRS Small Business Division Audits
The IRS SBD focuses on pass-through entities. These include:
- Limited Liability Company – LLC
- S Corporation
- Sole Proprietors
These Field Audits are initiated by a Letter from the IRS with an Information Document Request. Frequently, there will be a date listed for the audit. DO NOT CALL THE REVENUE AGENT – Instead, have your Tax Attorney contact the IRS!
Issues IRS Attacks
- Proof of gross income – especially if there is cash or barter transactions
- Travel and meal expenses – proof of the business purpose
- Auto expenses – commuting and personal use
- Independent contractors 1099 – are they really W-2 employees?