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Audit-ocalypse Now: How Businesses Can Survive an IRS Audit

Posted by Ryan Mason to Business Advice

Operation_Castle_-_Romeo_001Being audited can seem like a slow-motion nightmare, a nightmare that 33,000 companies experienced in 2013 alone. However, being audited doesn’t have to send you down a rabbit hole of terror. Whether you’re being audited or just preparing for the possibility of an audit, this article will help you understand what to do and how to survive.

If you’re being audited right now, the most important thing to do is...

Try to Relax

I know what you’re thinking: “that’s easy for you to say!” But in reality, being audited is not the end of the world and it won’t be the end of your business (unless you really were egregiously evading paying your taxes.) Also, just because the IRS tells you that you owe a certain amount doesn’t mean you will have to pay the whole thing in the end. If you can prove that your tax responsibility is less than the IRS says it is, you can argue and win by being motivated, assertive, and of course, organized.

In The Land of Audits, The Organized Are Kings

This isn’t intended to sound like a “told you so” moment, but keeping your financial documents properly organized is a safeguard against having an especially bad audit experience. Not having the documents you need can literally cost you thousands of dollars during an audit, since those documents can be used to convince the IRS that you owe less than they say you do.

According to the IRS, business owners should be saving the following documents:

  • Gross receipts
  • Proof of purchases
  • Expense documents
  • Documents that verify your assets

Although you could save these documents in a filing cabinet, inDinero’s software makes it much easier. Our software allows you to upload receipts for all of your business transactions, and also logs all of your transactions and invoices, which will help if the IRS ever comes calling.

There Are Different Types of IRS Audits

Although the type of audit most business owners imagine are the type where the IRS agent shows up asking to dig through your filing cabinets, in reality there are three types:

  • correspondence audits
  • office exams
  • field exams

Important: No matter what type of audit you are facing, let your account manager know and we will help navigate you through the process by providing you with information and guidance.

Correspondence audits are the most common and least intensive: they’re done through the mail. 80% of all audits are correspondence audits.

The office exam is more serious, and involves a face-to-face meeting with an agent at the IRS office. It is typically finished up in a single day.

Finally, the field exam is the rarest and most serious type of audit: it is held at your place of business. If the IRS wants to perform a field exam, chances are they are looking for something very specifc. This type of audit is performed at your business because the agent will want access to the widest possible range of information.

How to Successfully Argue with an IRS Agent

If you feel like the IRS is wrong about how much you owe, there’s a good way and a bad way to state your case.

DO: Be respectful. IRS agents have stressful, difficult jobs, mainly because no one ever wants to hear from them and they know it. The more respectful you are, the more likely they are to listen to what you have to say.

Although you need to be respectful, DON’T be a pushover. The IRS is counting on you feeling nervous and intimidated, and if you don’t speak up and politely disagree when necessary, you will regret it later.

DO ask for more time to prepare if you feel you need it, very often the IRS will provide you with it.

In addition, DON’T say or provide more than is absolutely necessary.

inDinero is Here to Help

If you get a letter from the IRS and you’re not sure what to do, make sure you scan and send it to your account manager at (yourcompanyname) We can’t make the issue go away on our own, but we can help you work through it. In addition, our support structure provides you with the assurance that knowledgeable tax experts are a click or call away. An audit can be scary, but you can get through it-- and become stronger and more organized along the way.

How much of your future time will 30 minutes with a financial expert save you?


About the author

Ryan Mason

Ryan Mason is a content creator, former teacher, and martial arts movie collector from Concord, California. He currently lives in Portland, Oregon and loves coming to work at inDinero every day.

Disclaimer: The inDinero blog provides general information about tax, accounting, and business-related topics. It is not intended to provide professional advice. Read more in our Terms of Use.