Yes, the word strikes fear in every taxpayer’s heart. Here are the basics. You may know someone who’s been through an IRS audit. You’ve at least heard that it can be a grueling, complex process. But how much do you really know about this potentially-unpleasant procedure? Here’s some of what every business owner should know.
What is an IRS audit?
In an audit, the IRS examines your company’s accounts and financial information. The agency’s intent is to make sure that your return is in accordance with tax laws and that you paid the correct amount of tax.
How are businesses selected for audits?
If that notice comes in the mail (the IRS does not send audit notification through email, so don’t give out personal information online to someone who purports to be a representative) or you get a phone call in addition, don’t assume that the IRS believes you’ve made an error of some kind.
Audit subjects are selected in one of three ways:
How are audits conducted?
Audits occur through the mail or in person. If it’s the latter, you may meet in your home, at your office, at an IRS office or at your accountant’s location.
Are changes always requested?
No. Sometimes your return will be approved as filed. If you are asked to make changes, you’ll get a thorough explanation.
How long does an audit take?
It depends on several factors, including the audit type, your ability to produce the requested documents, the level of complexity, the ease of scheduling meetings with all involved and your reaction to the audit’s results.
What records will I be asked to produce?
You’ll get this information in writing. Electronic records may be acceptable, but check with your auditor to make sure they’re in an acceptable format. Remember that you should be keeping copies of all tax-related documents for at last three years after you file a return.
What rights do I have in an audit?
Many. They include the right to:
