Strategies for Handling a Tax Audit
Tuesday, October 18, 2016
The chances that your business will be audited are actually decreasing each year—in part due to the growth in the number of successful US businesses versus the stagnant number of IRS auditors—but if you find that your company is in the small, but unlucky, percentage of US businesses facing an audit, here are some strategies for getting through the process as efficiently as possible.
Unlike nearly any other time in business, delay works to your advantage here. Work with auditors to schedule your audit date as far out as possible, if only to give your staff time to get your company records in order. Assuming your company is not being investigated for tax fraud, you have three years from the time the tax return was filed to complete the audit.
Keep it Real
Go in to the audit with realistic expectations that your company will probably owe money in the end. On average, a field audit adjustment (hosted on company or personal property) totals $17,000 and an office audit (conducted at the IRS office) adjustment totals $4000.
The average adjustments for field audits and office audits make it fairly clear that your company will fare better by going to the IRS office, rather than agreeing to host the audit on your company premises.
Keep it Brief
Never lie in response to a direct question but stay tight-lipped otherwise. Don’t offer any information that isn’t specifically requested, even in light conversation. And don’t offer other years’ tax returns to the auditor or you could be in for another audit if something stands out in those returns as well.
Organize and Negotiate
Pull together all the documents you’ll need for the audit beforehand and if you’re missing records, you are legally allowed to reconstruct them. Negotiate disallowances the auditor is considering and defend your position. Don’t bother trying to negotiate the amount owed or explaining that you can’t pay the final amount; neither will influence the auditor’s decisions.
Understand your Rights
Bring your documents and talk to a tax lawyer before the audit to gain a complete understanding of your rights prior to the audit. If you are dealing with tax fraud, enlist the help of a legal team to get you through the process.
If you don’t understand or agree with the audit report, contact the auditor for clarification. If a compromise can’t be reached you may appeal within the IRS or go on to Tax Court with the help of legal counsel.
Contact our office with questions about tax law or for an initial consultation. We’ll help you decide if it’s in your best interest to consult an attorney when facing a tax audit.
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