Dealing with Audits of Your Business

By Jennifer Noble | Dec 06, 2017

The year is finally coming to an end. If you are a business owner, this is a time to think about taxes. It is a time to ensure that your documentation is in order.

 

You are probably collecting and organizing receipts, invoices, and other relevant financial documents in preparation for the tax season. And you may feel a little worried about the possibility of an audit.

 

But what do you do after the tax season if you, unfortunately, receive an audit notice? Do not panic: an audit does not always lead to adverse repercussions. Here is how to handle it:


Ensure You are Dealing with the Internal Revenue Service

 

There are scammers out there. Some may pretend to be the IRS and try to threaten you. The IRS typically does not initiate audits by telephone. They will not contact you through email or social media. And they never insist you make payment using a specific method such as a debit or credit card. It is not IRS if you have not received a mailed letter with their contacts.

 

Anyone trying to contact you this way is most likely a scammer after your personal information. You already know what identity thieves can do with your financial and personal information, don't you?

 

Read and Understand the Notice

 

The worst thing you can do is to ignore the letter and hope the taxman will just go away. Before you respond, read the notice attentively to ensure you do not miss anything. Contact an experienced accountant or a tax attorney to help you identify the specific issues the IRS has raised.


Organize Your Records

 

Gather every relevant document. If the auditor wants specific documents for review, make sure you avail them without delay. Organize your bank statements, invoices and receipts relating to business payments, canceled checks, ledgers, hard copies of tax preparation data, and business property titles or leases.

 

If you are a healthcare provider, for example, you may receive an audit notice from Zone Program Integrity Contractors. Your area's ZPIC will notify you of their intention to audit your facility. But they are permitted to make unannounced visits during the audit process and interview anyone. An adverse review from these medical auditors may lead to your exclusion from the medical program. Having airtight documentation and ensuring you are fully compliant gives you protection against fraud investigation and Medicare exclusion.

 

Answer the Specific Questions Asked

 

The taxman requires you to respond to specific issues. It is not advisable to be generous with information IRS has not requested. Availing such information may lead to more questions and other issues. If you have additional tax-related problems you would want the IRS to address, send them a separate letter.

 

Do not share information from previous years unless the auditor requests it. Additionally, do not bring to the audit meeting any document the auditor has not requested or documents relating to other years of income.

 

Work with a Professional

 

You will most likely find the audit process daunting and stressful unless you are a tax professional. You may say the wrong things during a face-to-face interview with an auditor.

 

Having competent professional support can make you feel a lot less anxious during the audit. It is advisable to let your tax professional respond to questions. How does this work? Give the IRS a signed power-of-attorney agreement that allows your tax professional to talk on your behalf.

 

Even if your tax advisor does not have power-of-attorney, have them accompany you whenever you are meeting with an auditor. Being with a competent tax professional every step of the way can help you face the process with confidence.

 

Remain Calm

 

Be calm and respectful throughout the audit process. The auditor is a human being with feelings, too. Do not be hostile or defensive during the interview. Antagonizing the auditor is not is in your best interest; it ends up alienating them.

 

Handling an audit can be a time-consuming and stressful process. Unfortunately, it does happen to people, even to good and honest people like you. Record keeping is something you should always take seriously. And it is certainly not a good idea to face the taxman alone. If you do not have a tax professional, you should consider finding one.

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