Despite the fact that audits are probably not as common an occurrence as most business owners might think, it still pays to do your best to avoid being targeted for one, by working closely with a tax and accounting professional, throughout the year.
However, should you be selected by the IRS for a tax audit as a business owner (which likely means you’ve been managing your taxes without professional help), there’s no need to panic, just read this brief guide to prepare yourself:
It’s important to recognize that most businesses don’t get audited
While this may be true – and the statistics from recent IRS Data Books support this fact – it doesn’t mean that small business owners should become complacent and believe that even if they fail to file their taxes correctly or on time, that they still won’t face an audit.
They are a rare occurrence, but can still happen, so while not living in fear of being audited by the IRS, neither should you become lax with your taxes and accounting processes in general.
If a partnership is questioned by the IRS, who will be audited?
A special audit regime known as the BBA Centralized Partnership Audit Regime, makes the entity level of partnerships responsible for tax audit monies owed and for making all appropriate amendments to returns. For S and C corporations, partnerships made up of 10 or lessmembers, foreign entities, and estates of deceased partners, these may be able to opt out of the audit regime, which will mean that the IRS will be forced to ask their questions of an individual partner.
In some cases, a simple mistake may just need to be rectified
As is the case in many instances, it may simply be that some important information has accidentally been left out of a tax return, or income has been omittedthat was reported by another entity. If both parties can agree to the mistake, and the entity at fault agrees to rectify the error swiftly, that may well be the end of the matter. Should you believe that the IRS are at fault and you wish to appeal their judgement, however, you may do so, provided you act quickly.
There are many stages to an audit appeal
Pursuing an appeal should an audit not go the way you had expected it to, can take several stages, the first of which is to file a small case request if the amount owed is $25,000 or less. Appealing cases in which larger sums of money are involved, will involve a different procedure at an elevated level.
The IRS are not at the top of the audit food chain
The final decision regarding what a business owes to the IRS, is down to the Tax Court, and there is an appeal procedure available through the Tax Court for amounts of $50,000 and less, that is quicker and more affordable. Just be sure to take action swiftly if you are appealing a decision, as you only have 90 days from the time you received notification of the deficiency, to do so.
Audits aren’t common, but when they do happen, they can be frustrating and downright inconvenient. The best way to avoid being targeted for an audit is to work with a tax and accounting professional, and should you be targeted, they may also be able to guide, and even represent you, in front of the IRS.