The easiest way to reduce your chance of getting audit is this: Be honest. Still that won’t guarantee that the IRS won’t audit your business. The IRS chooses tax returns for audit by computerized screening, random sample or document matching. In short, you may be picked by a computer or the IRS may have found discrepancies in your business tax return. If it’s something simple, the IRS may conduct your audit by mail. It may take a few exchanges between you and an IRS agent, but the process should be fairly straightforward.
Should the IRS have more serious questions, an agent may want to conduct an in-person interview at the IRS office or your place of business.
Here’s how you can help yourself and your business.
- Review IRS letter with a professional.
You typically have 30 days to respond to the IRS letter you receive by mail. Don’t delay because if you owe money, your debt will accrue until the issue is resolved. Before you respond, contact your tax professional or CPA for advice.
- Collect copies of your documents.
As a general practice, you should keep good records year-round. Your business records should be separate from your personal records. You should compile a summary of income and expenses used to prepare your return and collect supporting documents for the audit. If you can’t find certain paperwork, ask for duplicates. Don’t give more than the IRS requests, and don’t give the IRS your originals. Make copies.
- Have a professional by your side.
You have a right to be represented at an audit by an enrolled agent, an unenrolled preparer who prepared your return, an attorney or a CPA. For audits by mail, you may just want to contact your tax professional for advice and guidance. For in-person audits, it’s best to have a tax professional go with you or go in your place. Form 2848 Power of Attorney authorizes an individual to act on your behalf. Form 8821 allows that individual to inspect and receive your confidential tax information.
- Show your confidence.
Remember, your tax return is correct, as far as you are concerned, and you have records to support your contention.