Do you know what to do if you receive a notice from the IRS that your business is being audited?
First, you should reply as directed. Second, if you’ve never been audited, do some homework – it’s easy!
The Internal Revenue Service has launched a new online video series called, Your Guide to an IRS Audit. It follows three hypothetical small business taxpayers step-by-step through an audit, from notification to closing.
You can use this educational tool to become more familiar and knowledgeable about the audit process, simply by watching. Be more comfortable about what to expect as it shows how best to prepare for an audit, demonstrates process steps, outlines responsibilities expected and answers frequently asked questions.
The series has ten stand-alone lessons viewers can select and watch in any sequence. A bookmark feature makes it possible to leave and return to a specific point within the lesson.
What is an IRS audit?
An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.
Publication 556, Examination of Returns, Appeal Rights and Claims for Refund explains the audit process in more detail.
Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
· Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
· Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
· Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
An audit may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained.
What Happens When You AGREE With The Audit Findings?
If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.
If money is owed, there are several payment options available. Publication 594, The IRS Collection process, explains the collection process in detail.
What Happens When You DISAGREE with the Audit Findings?
A conference with a manager may be requested for further review of the issue or issues. In addition, Fast Track Mediation or an Appeal request may be filed.
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