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10 Important Steps to Successfully Defend Your Business in an IRS Audit

10 Important Steps to Successfully Defend Your Business in an IRS Audit

Always be prepared to defend yourself or your business against an IRS audit.  Here are 10 important steps to take to ensure that you’ll be in good shape even if the IRS selects you out for an audit:

1.     Engage your CPA to represent you in an audit by signing Form 2848 Power of Attorney.

2.     Insist on meeting at a neutral location for the audit, such as your CPA firm’s office.

3.     Answer IRS auditor questions (in the presence of your CPA) honestly, but don’t provide more information than asked for.

4.     Maintain bank statements and the related bank reconciliations, deposit ticket images, and check images.  The IRS will compare sales revenue with the deposits clearing the bank accounts to determine any unreported income.

5.     Maintain loan agreements.  The IRS will review the terms to determine if the loans were genuine and, if not, recharacterize loan repayments to business owners as dividends or distributions.

6.     Maintain sales invoices to support the business sales revenue reported.  The IRS will attempt to treat unsubstantiated non-sales bank deposits as taxable income.

7.     Maintain purchase invoices to provide proof of deductions.  The IRS will attempt to disallow any deductions claimed without evidence.

8.     Maintain income tax, payroll tax, sales tax, and business personal property tax returns.  The IRS will compare the amounts reported on these various returns for consistency.

9.     Maintain Forms W-2 and 1099.

10.  Maintain business formation documents, including Articles of Incorporation/Organization, Corporate Minutes, Bylaws/Operating/Partnership Agreement, Form 8832 Entity Classification Election, Form 2553 Election by a Small Business Corporation, and investor agreements.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.