How Illinois Businesses Can Prepare for an IRS Audit
The IRS may choose to audit a business based on certain inconsistencies or abnormalities on its tax return. Each return is run through a system that automatically compares it with other returns from similar businesses in the area. If it scores high enough in the system, it’s selected for audit. Additionally, other returns are selected purely at random, so it is possible to be audited after having done nothing wrong.
While there is a fairly low chance that any business will be audited, it’s still important to be prepared in case the IRS sends you a letter.
Being Audited
First of all, there are three types of IRS audits:
- Mail: The IRS will send you a letter requesting further information on your return.
- Office: In cases where there is a more significant issue, they will ask you to visit an IRS office.
- Field: A field audit is when the auditor visits your home, office, etc. This is typically reserved for the most significant cases.
An audit may occur if a return shows substantially larger-than-normal deductions, reports abnormally consistent losses, or simply has math
errors. In any case, there are a few things Illinois businesses need to do to prepare for an audit to make sure it goes as smoothly as possible.
Document Everything
The first key to preparing for an IRS audit is to get all records together. The IRS may request any of the following:
- Receipts
- Canceled checks
- Bills, along with the name of the organization and the date you paid them
- Legal papers relevant to your business, deductions, and tax credits
- Tickets to show travel expenses
- Loan agreements and corresponding information
- Diaries or logs showing business travel, winnings, losses, job hunting activities, etc.
- Documents of theft or loss, such as insurance reports or photos
- Employment documents
- Medical and dental records
- Schedule K-1 to show shareholder income, losses, etc.
Since each audit is different, this list is not comprehensive. However, if the IRS sends you an audit letter, you will have some time to get the needed documents together. It’s vital to have all documentation pertaining to your business and tax return carefully maintained and well-organized to make this process as simple as possible.
Double Check Math
Before sending your tax return in, be sure to double-check the deductions, credits, income, and other information you are reporting to see whether it may attract the IRS’s attention. Even if everything is fully justified, reviewing your return will help you prepare in advance for a possible audit. You’ll be able to get all the necessary information together in the event that you are contacted.
Legal Representation from a Tax Attorney
If you are facing an in-person audit, you will benefit from legal representation. You are entitled to an attorney in these cases, and an experienced tax lawyer will be able to represent your best interests with a high level of expertise and knowledge of the law. If a dispute arises, you’ll have the support you need to make sure you are treated fairly.
Hart David Carson, LLP, represents Illinois businesses in the event of an IRS audit. For more information, contact us today.