Edited: 28 March 2021

Every year the Internal Revenue Service audits a number of U.S. businesses. Knowing how to prepare for and handle an audit can minimize stress and even provide opportunities to improve company operations. In some cases, audits may even lead to smaller tax bills.

Tips for an IRS Business Audit

Regardless of the type of IRS audit you and your business is involved in (correspondence, office or field audit), the best way to deal with an audit is to know what to do and not to do. Consider the following:

Be Professional

• Do:   Auditors have a job to do, and it’s in your best interest to show them respect. If you’re called to their office, show up on time, dress appropriately and have requested documents in hand. If auditors visit your place of business, encourage staff to answer questions honestly and completely. Within reason, it’s acceptable to ask for more time to locate a particular record. If you can’t find supporting documentation, say so.
  
  
• Don’t:   Argue with the auditor. Ask for clarification if needed, but don’t question every document request. If you disagree with the auditor: state your case and understand you have appeal rights should the disagreement become costly.

Be Organized

• Do:   If you keep business records on a computer, know how to create and print easy-to-follow reports. Prepare for the audit by laying out checks, invoices and other records in a logical fashion.
  
  
• Don’t:   Dump a box of receipts into an auditor’s lap. The easier it is for an auditor to find what they need, the shorter the time period required to complete the audit. Remember, the longer an auditor spends with your records, the more likely he or she will find something amiss. Also, keep in mind that it’s rarely a good idea to create records during an audit. Exceptions maybe if you’re honestly trying to reconstruct transactions from memory or your records don’t exist (for example, after a natural disaster or fire). IRS agents are often suspicious of hastily prepared documents that smell of wet ink.

Be Honest

• Do:   Make a straightforward effort to justify deductions. If you can’t locate a specific record, look for alternative ways to support your tax return. For example, if you’re claiming a deduction for depreciation but can’t locate the paperwork, redo the calculation for the auditor. A vendor, landlord or mortgage company may have copies of pertinent records if yours have gone missing.
  
  
• Don’t:   Create numbers that can’t be corroborated or reasonably explained.

Ask For Help

• Do:   Get an expert in your corner if you're facing an audit.
  
  
• Don't:   Ignore your need for help. Remember, auditors conduct audits all the time. This is a rare event for you. Too many businesses provide more information than is needed, opening themselves for a higher tax bill. Make sure this is not you!

For U.S. businesses, tax audits are a fact of life. By knowing what to expect, you can be prepared if the IRS comes knocking. Call for assistance.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.



This publication provides summary information regarding the subject matter at the time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this newsletter. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Bay CPA Plus have any control over, or responsibility for, the content of any such Websites. All rights reserved.