8 Things You Should Know About IRS Audits

Yes, the word strikes fear in every taxpayer’s heart. Here are the basics.

You may know someone who’s been through an IRS audit. You’ve at least heard that it can be a grueling, complex process. But how much do you really know about this potentially-unpleasant procedure? Here’s some of what every business owner should know.

TaxTips0114image1_zps6921b47cWhat is an IRS audit?

In an audit, the IRS examines your company’s accounts and financial information. The agency’s intent is to make sure that your return is in accordance with tax laws and that you paid the correct amount of tax.

How are businesses selected for audits?

If that notice comes in the mail (the IRS does not send audit notification through email, so don’t give out personal information online to someone who purports to be a representative) or you get a phone call in addition, don’t assume that the IRS believes you’ve made an error of some kind. Audit subjects are selected in one of three ways:

  • Random selection/computer screening
  • Document-matching (W-2s or 1099s, for example, don’t match information claimed on the return), or
  • Involvement of related returns (if one of your business partners, investors, etc. is audited, you may become a part of that audit).

How are audits conducted?

Audits occur through the mail or in person. If it’s the latter, you may meet in your home, at your office, at an IRS office or at your accountant’s location.

Are changes always requested?

No. Sometimes your return will be approved as filed. If you are asked to make changes, you’ll get a thorough explanation.

How long does an audit take?

It depends on several factors, including the audit type, your ability to produce the requested documents, the level of complexity, the ease of scheduling meetings with all involved and your reaction to the audit’s results.

What records will I be asked to produce?

You’ll get this information in writing. Electronic records may be acceptable, but check with your auditor to make sure they’re in an acceptable format. Remember that you should be keeping copies of all tax-related documents for at last three years after you file a return.

What rights do I have in an audit?

Many. They include the right to:

  • Be treated courteously and with respect by IRS representatives
  • Receive explanations of the rationale for requesting information, how it will be used and what the ramifications of not providing it are
  • Privacy and confidentiality
  • Represent yourself or appoint an authorized representative, and
  • Appeal findings that you don’t think are warranted, either through the IRS itself or the court system.

TaxTips0114image3_zpsa769b778Can I do anything to avoid an audit?

Not if you’re simply selected randomly or you’re involved with an entity that is audited. But we can help you throughout the year as you manage tax-related accounting tasks. We’ll prepare relevant reports, be involved in business decisions that can have impact on your current return and help you keep an eye out for every possible legitimate deduction.

We don’t want you to obsess about the possibility of an IRS audit, but we do want to contribute to the peace of mind that can come through year-round awareness of your income tax obligation.


About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.
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