Dollars & Sense

IRS Audits

The Internal Revenue Service is increasing the number of tax returns selected for audit. However, there is good news, if you take the total number of tax returns selected for audit and divide by the total number of tax returns filed there is a decrease in the actual audit rate (at least for now).  

If you happen to have filed a tax return that gets selected for examination here are some things to know.  

First, be aware that the self-employed have always been a favorite audit target of the IRS. The IRS tends to audit those tax returns with the potential for the biggest payoff. Hence the self-employed are more closely scrutinized than any other group, so be prepared to backup your business expenses.

If you have a deduction that is unusual or higher than average it's a good idea to attach supporting documentation with the tax return. Providing substantiation gives the IRS proof that the deduction is legitimate. Not to mention that the IRS isn't much interested in auditing those with backup to all their deductions.

During a business audit, no matter what the audits primary focal point, the IRS auditor will most likely look at meal, entertainment and auto deduction records as well. 

Audit Preparation Tips

1.  During on audit you must substantiate any credits, deductions or exemptions the IRS is questioning.

2.  You have the right to postpone the audit in order to get your records and information gathered. Always request more time if you need it.

3.  Do not have an audit conducted in your home or place of business if possible. Go to the IRS or have your tax professional represent you.

4.  Do not provide the IRS with more information than you have to.

5.  Be prepared to owe something, chances are you will (statistically that is).

6.  Always consult a tax professional prior to the audit. If the audit is not going well request a recess to consult your tax professional. Any fee paid to a tax professional for audit representation is deductible.

7.  If you feel the auditor is treating you unfairly ask to speak with the auditor's manager.

8.  If you don't agree with the audit results, you may appeal.

IRS audit guides exist for more than 50 different kinds of businesses. These guides are used by IRS auditors when conducting tax examinations of particular types of businesses and professions. You can find these guides on the IRS website at www.irs.gov, click on "Businesses" and then "Market Segment Specialization Program".

What should I do if I receive an IRS audit notice?

It is our recommendation that you have an experienced tax professional handle the audit for you. Notify your tax professional as soon as possible. Your tax professional can help prepare you for an audit, accompany you to the audit or act as your representative and go instead of you.

Even if you feel you can handle the audit yourself, you may want to notify your tax professional so that he/she can review the tax return in question and the supporting documents before your meeting with the IRS.

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century.  If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at www.pbstax.com.

Everyone's financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.