Steps to what to do if your business get audited

Written By Steps To Faculty Published October 14th, 2010

When starting your own business you plan your accounting system carefully and may even hire a CPA to help you establish your taxation records. You have been careful about taking deductions. You even have all of the IRS tax codes for small businesses memorized. Despite all of this effort, you get the notice. The large white envelope in the mail that reads Internal Revenue Service. As you gulp, you open and discover that you are being audited by the Internal Revenue Service. Now what do you do? Before you panic there are a few steps that you need to take if you are being audited by the IRS. Many times audits are done via letter requesting documentation and more explanation about deductions and reported losses. Failure to comply with a letter audit can result in a physical meeting with an agent. Find out your next step now that the envelope has been opened.

Step 1 Assess the reason for the audit

Usually the IRS will tell you on the first page of the letter what issue they are having. However, if you do not see this, look through the copies of the filings that they send in the letter. This gives a detailed indication about the issue at hand and the nature of the tax audit. Often times the issue involves a section of your recent tax return. In rare instances, the entire tax return is in question.

Step 2 Review your records

Once you have determined what is being questioned, review your receipts and records for the tax year in question. Be sure that you have everything noted and organized in detail. You will be defending your tax return so you need to ensure that there is not one receipt out of place or even a dollar amount reported that is incorrect. Even the slightest mistake at this stage can cost you a great deal of money.

Step 3 Seek help

If you have any issue regarding any tax issue retain the help of a CPA or tax attorney. Even if you hire them for a two hour session for $100 it is better to be safe than sorry. Sometimes there are deeper legal issues at hand. If you are not familiar with current tax laws, which change on a daily basis, a tax attorney may be the way to go. Find great and inexpensive tax attorneys at aicpa.org and search under professional members. You can also use the yellowpages.com or 411.com for a larger scale search.

Step 4 Mail in the documents

If there are no pending deeper legal issues, such as false filings, then send the requested documents back to the IRS. If possible, make copies of all documentation and receipts to send to the IRS. In the event that you send in originals, keep a copy. It is advised that you send copies, however, as the originals may sometimes get lost in the mail and you will be in even bigger trouble. Highlight the are dollar values and show all appropriate receipts that correspond to the losses reported or the expenses deducted. Note that if losses are reported more than 2 years in a row the IRS is naturally curious as to how you have managed financially. Be prepared to offer an explanation.

Step 5 Put it in writing

When dealing with the IRS for any issue, be sure to put it in writing and even keep several copies. By doing so, you ensure there is a paper trail and record of your correspondence. If possible, when mailing use certified return receipt to legally prove that you submitted documents.

In some cases, you may have to file an appeal with the US Tax court. Although extremely rare, know that you have a right to an enrolled agent, found at ea.org who can defend you. Please visit stepsto.com for more great business advice.


Roger Due

Investing in Your Destiny® & Coaching Program - Wealth Building Summit Dallas, Texas

My name is Roger Due and I am from Albuquerque, New Mexico and I am the owner of the Monsano software company. This has been an absolutely fantastic conference. This is the best I have ever been to.