The first thing to take note of when you face an IRS audit is that you are not alone. It’s rare but it’s there. It’s common to feel a bit weary of the whole process. An IRS audit is not something that business owners exactly look forward to. Nevertheless, such inspections may take place.
The following information should help you navigate through the examination smoothly and seamlessly.
Who Gets Audited By The IRS?
Most of the business owners think little of exactly what will happen during an audit. All they are concerned about is how to avoid one altogether. IRS audits can take place for several reasons. The IRS does carry out some random audits, or the inspections may be the result of IRS form errors.
You should keep in mind that only a handful of businesses, 2.5% of all small businesses to be precise, face IRS audits. You need the necessary information on IRS audits. Some common questions and their answers on IRS audits follow.
What Is The Information Required By The IRS?
In all likelihood, during an audit, the IRS will ask for some records. These records happen to be the documental proof of your tax return claims.
Some of the files and documents that the IRS commonly asks business owners to provide are as follows:
- Bills
- Receipts
- Legal papers
- Canceled checks
- Logs
- Loan agreements
- Employment documents
You need to keep records organized as per income or expense types as well as years. You should try and keep detailed transaction records. If there is any particular doubt about a transaction, you should get in touch with your auditor.
What Rights Do I Have In The Taxpayer Bill of Rights?
The IRS introduced the Taxpayer Bill of Rights in 2014 as a document that would serve to make understanding of complicated taxes easier. The document enshrines ten universal rights of taxpayers, as well as businesses undergoing an audit, are as follows:
- Stay Informed
- Get quality service
- Pay only the amount of tax due
- Challenge the position of IRS on the matter
- Appeal against IRS decision in independent forums
- Finality
- Privacy
- Confidentiality
- Retain representation
- Have a fair and judicial tax system
The Taxpayers Bill of Rights is a useful document that binds the IRS’s activities and should be indicative of what the IRS can and cannot do.
How Will The IRS Tell You That They Will Conduct An Audit?
If the IRS wants to carry out an audit on your business, then you will receive notices accordingly through postal mail. Audit notifications are never conveyed through email and phone calls.
The tax notice sent to you by the IRS will contain contact information and the steps that you need to perform. The audit itself can be carried out by IRS personnel in person or some cases through email. You must follow the directives laid down for you in the notice. You can request an in-person audit if the IRS wants to carry out the same through the mail.
How Long Will The IRS Take To Finish An Audit?
IRS audits need not have a set period as per the IRS. The process begins once you receive the audit notice from the IRS authorities.
The timeline for the process depends on several factors that include:
- Accuracy of records
- The kind of audit the IRS is carrying out,
- Availability of you and your auditor and
- Your particular response to what the auditors found while carrying out the process.
Things like objections to the findings serve the lengthen the time of the audit. In such cases, you should discuss the issue with the IRS personnel further, and in some cases, you might even need to file appeals. All this serves to make the process consume more time.
If there is an audit, you need to ensure that your business maintains records in an organized way. Accuracy in record keeping helps avoid audit examinations and keeps things streamlined and straightforward in case one occurs.
After The Audit
An IRS Audit could have the following outcomes:
- The inspection ends with no changes
- There are changes that the taxpayer agrees to
- The taxpayer does not agree with the audit findings and files an appeal.
Following the audit, the taxpayer receives a computer-generated audit report. This report includes details of additional taxes the IRS has assessed and how your business’s returns will be modified.
It also gives you options to appeal against the report or agree to its findings. You can provide an accent to the report findings through a sign stating the same. You lose your right to go to the courts against the report if you sign it with an agreement with the outcomes.
You don’t need to sign the IRS audit report immediately upon receiving it. You should ask for additional time for the same and take professional help. Remember that with accurate and organized records that chances of finding anything against you are slim, and you and your business are most likely to remain unaffected by the audit!