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Factors to Keep in Mind during An IRS Tax Audit

With the start of the tax season a few weeks away, many business owners will soon pay close attention to their tax returns. A concern that inevitably creeps into the minds of many taxpayers is the possibility of being questioned by the IRS.

An IRS audit is a review/examination of the accounts and financial information of an organization or a person to ensure that the information is correctly reported in accordance with tax laws and to verify that the amount of taxes shown is correct.

An employer identification number (EIN) is also known as an IRS tax ID number is used to identify a business entity. In general, companies need an IRS tax ID number. You can request an IRS tax ID number in several ways and now you can submit your application online. The service is offered by the Internal Revenue Service (IRS) and the IRS tax ID numbers are provided free of cost.

Selection for a review does not always suggest that there is a problem. The IRS uses several methods:

Random selection and computer detection

Sometimes, returns are nominated based entirely on a statistical formula. Your tax return is compared with “standard” for similar returns. IRS develops these audit-based “standards” of a random sample of statistically valid returns, as part of the national research program that the IRS carries out. The IRS uses this program to update information on the selection of returns.

Related exams

An expert reviewer reviews the performance. They can accept it; or if the reviewer detects something objectionable, identifies the annotated items and sends the declaration for assignment to a group of examiners.

When it comes to taxes, there is nothing worse than the idea of being controlled. While some have a higher risk than others, anyone can be the target of a revision by the IRS. The average taxpayer has a probability of 200 to 1, to be selected for an audit.

So, what can you do if you receive this dreaded warning? In almost all cases, it is best to consult a tax professional. Here are some tips to help you prepare:

Get the documentation and work documents in order

It is likely that the IRS will first ask for documents such as past tax returns, financial statements, receipts, and calculations. You do not want to be taken aback, or worse, do not want to be unprepared for the meeting. The IRS can also make specific requests for information before meeting you. But you do not always have to give them what they ask for; discuss with your accountant what you should offer.

Be ready to express the reasons for sensitive or uncertain problems

The IRS will question you on several articles in the tax return that the agency considers suspicious. Being able to defend what appears on the 2012 tax return, especially the red revision flags, such as the uncertain fiscal positions revealed.

Provide the IRS with the minimum necessary

Do not send more documents than IRS requests and answer only what the agents ask you, that’s all. You are a witness, so be brief during an interview. You are not required to volunteer more than required. Do not lie, cheat or avoid answering questions completely, but in general, less is better.

Hire an expert

Some CPAs are not equipped or experienced as others in representing a company before the IRS during an audit. If your accountant falls into that category, consider hiring an accountant who has experience in working with the IRS and experience in the review process. Having a well-qualified expert on your side can help eliminate the stress associated with the audit and it is likely to improve the results.

Be honest with deadlines

If you cannot commit to a deadline set by the IRS, request an extension and explain the reasons. If the extended deadline cannot be met later, discuss the need to spend more time on the IRS as soon as possible. Do not just ignore deadlines: it will not solve your problems and often it will make things worse.

Organize the meetings in a neutral place

In general, it is a bad idea to conduct the IRS audit in your office or at home. When the agency wishes to meet, you should request that it be held at your CPA office or another neutral location. You want to be in control of everything. If the IRS arrives in your office, agents can try to talk to employees, expand the scope of the audit based on observations, ask you to submit documents that you have not discussed with your accountant in advance.

Be kind, but keep in mind that you have rights

This seems silly and elementary, but the truth is that many people who are revised tend to resent the agents and are hostile towards them. There is no reason to create an antagonistic relationship. On the contrary, there may be agents pushing the limits of what is the correct behavior for the IRS in control situations. In other words: hope for the best, prepare for the worst.

You may think that IRS audit will never happen, but if this happens, you need to know that you have the rights and that there are ways to keep control of the situation.

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