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What Happens if the IRS Audits a Taxpayer's Business?

Posted by Admin Posted on Aug 19 2015

The IRS is aware that small business owners sometimes misclassify items and may select business tax returns for an audit. This is generally done through random selection and does not indicate that the taxpayer or preparer made errors; this simply means that the IRS would like to review the return to ensure its accuracy.

In addition to this, the IRS may audit a business for several other reasons including:

  • A taxpayer may be selected through computerized underreporting. The IRS matches what is reported on a taxpayer’s return and information they have obtained and determine if differences exist.
  • A taxpayer is an employer who failed to file payroll tax returns or make timely payroll tax payments throughout the year(s).
  • A taxpayer misclassified W-2 employees as independent contractors.

When preparing for a business audit, documents and records that support reported items must be gathered. Taxpayers ought to be well organized in order to help the audit run smoothly and progress quickly.

In addition, taxpayers should create a list of various issues found while preparing for the audit; if a taxpayer is unable to support items reported on a tax return or a tax professional identifies other possible issues the taxpayer should write them down.

Next, it is important that taxpayers never falsify information or act unprofessional. The IRS simply wants to verify information reported on a tax return.

Finally, don’t delay the audit. Respond to all IRS notices and requests in a timely manner. Request extensions if deadlines cannot be reached. Delaying an audit will frustrate all parties involved and may cause the IRS to want to investigate further.

If you are being audited or have received any IRS notices regarding changes to a tax return please do not hesitate to contact us at office@cpafirm.cc or 763-786-7899.

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