For many small businesses, once the business tax return is filed, and taxes are paid, they wonder, ‘What if we’re audited?’ It’s not likely. According to the IRS, only 57,000 businesses were audited in fiscal-year 2014 – the fewest since 2006. This represents 0.57% of U.S. businesses.
So, what if your company is one of those selected? Though feared, an IRS audit does not necessarily mean bad news, or that they suspect wrongdoing. According to the IRS, audits are a review of an organization’s or individual’s financial accounts to confirm that financial information is reported correctly, and to verify that the amount of tax reported is correct. So for most businesses, having the IRS knocking at the door will be little more than an inconvenience.
If your business is one of the lucky ones selected for an audit, follow these guidelines:
Don’t Panic
It’s important to treat the audit as another part of doing business. Work with your tax professionals, and proceed in a professional manner.
Don’t Procrastinate
If your company’s return is selected for an audit, the IRS will send a notice by mail. Don’t delay in opening mail from the IRS. Deal with it right away, and it will make the process much easier and less stressful.
Provide the Information Requested
Many times, audits are conducted by mail. The IRS notice of an audit will include instructions. Review the instructions, and respond to requests for information and/or documents within the time indicated. If you aren’t sure you understand what is being asked of you, call the IRS phone number on the letter or go to your local IRS Taxpayer Assistance Center. Work with your business’s tax advisers.
Review the IRS Decision; Respond by the Deadline
After review of the documents requested, the IRS may accept the tax return as filed. Or they may propose changes. If they accept your return as filed, the audit process is complete. If the IRS proposes changes, you have the option to agree with the proposed changes, or disagree with the proposed changes. It is important to review your options carefully, and to respond in a timely manner. There are many options for managing this process. Read: Your Appeal Rights and How to Prepare a Protest if You Don’t Agree.
When working with the IRS on an audit, keep in mind that taxpayers have rights. They are:
The right to be informed.
The right to quality service.
The right to pay no more than the correct amount of tax.
The right to challenge the IRS’s position and be heard.
The right to appeal an IRS decision in an independent forum.
The right to finality.
The right to privacy.
The right to confidentiality.
The right to retain representation.
The right to a fair and just tax system.
For details about the audit process, go to the source! The IRS has a video guide to an IRS audit, and other helpful information.