Imagine that you have just received a notice in the mail that says your business has been selected for a tax audit. Don’t panic, because with some simple preparation, your audit will be a breeze.
The penalties for not passing an audit are dependent on what offense is identified by the auditor. If you do not comply with the tax code by understating your income or liabilities, or by failing to file a tax return, you can face civil charges that usually result in a fine, which sometimes can accrue interest. It is important to carefully document your finances and present your income and liabilities honestly so as to avoid this penalty.
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Most audits are conducted by an agent at an IRS office, and you will be notified of the results by mail and perhaps asked to make corrections or to provide additional documentation. If you receive a request that is extensive in nature, you may require the services of a tax attorney. If you are asked for a full in-person audit, it is best to be cooperative and provide all requested documents.
There are some excellent online resources to help you understand this issue in greater detail. The main issue is to be sure that your business has a set of SOPs, or Standard Operationg Procedures, for your accounting activities. This way you can demonstrate that your staff is treating all its paperwork in a consistent manner that is consistent with applicable regulations. Ensure that everyone who handles the books is able to understand and follow procedures. All correspondence related to finances should be kept on file for at least 5 years.
