Business-Minded Legal Solutions

Business owners and tax audits: What to expect

The Internal Revenue Service (IRS) reviewed tens of thousands of small business tax returns in 2017.

How will I know my business is the subject of an audit? The IRS always notifies the business through a mailing. Never by phone. 70.8 percent of all audits were conducted entirely by mail in 2017. After the original notice, the agency may send an agent to conduct a field audit, but this is relatively uncommon. Only 29.2 percent of all audits were conducted through use of a field agent in 2017.

The letter from the IRS generally includes a request for additional information. Requested information can include items such as business records, receipts and bank statements.

What happens next? After the taxpayer sends in the requested information, an auditor will review the paperwork. The auditor may then request additional information. The business owner may have an opportunity to comment after the auditor has conducted their review.

After the auditor’s review is complete, they will schedule an exit conference. During this conference, the business owner can either agree to the provided assessment or move forward with a challenge. In some cases, a challenge involves a discussion with the auditor that results in agreed changes. In others, the assessment may require an official appeal.

How can I better ensure a favorable outcome? It is a good idea to seek legal counsel. An attorney experienced in tax audits can help to better ensure the audit goes well. The audit also provides an opportunity for a business to reevaluate their tax planning strategies. Once the audit is complete, the business may want to refine their business plan to better ensure it is in line with their business goals.