When reading the letter from the IRS alerting you of a business audit, it’s normal to get nervous. Even if you and your advisers had the best intentions when paying taxes, an audit can surprise you. You may start to wonder if an undetected miscalculation could harm your company’s financial health.
An audit does not always mean that your business is in legal or fiscal turmoil. In many cases, the IRS finds no major fault with taxes and resolutions can have minimal impact on the business.
Regardless, the best way to begin an audit is to seek legal assistance. A tax attorney can guide businesses through this process to work toward the best possible outcome. You may want to discuss the audit with your lawyer before initially responding to the IRS.
Next, you should assemble relevant documentation. This includes payrolls, expense statements and any specific records that the IRS requests. Keep files organized for easy access to information.
Look over these records carefully before presenting them to the IRS. Double-check that personal finances didn’t intermingle with business assets. If you can pinpoint a simple unintentional error, you might be able to show the IRS that the discrepancy was an honest mistake.
Some businesses rely on professional tax preparers, who are supposed to accurately file returns. However, this can sometimes create errors from miscommunication. Tax preparers should have a license from the IRS before you hire them to avoid deceitful tactics and fraud liability.
While working with the auditor, it’s a good idea to remain polite and professional. Although you may think the audit is a waste of time and you have to focus on other aspects of your business, remember that tax laws contain a host of complexities. Complying cordially with the audit can save your company thousands of dollars and speed up the process.