An IRS audit is one of the most stressful situations you can face as a business owner. You may be concerned that the audit will affect your bottom line or even the viability of your business as a whole. It is important to understand your rights and options when it comes to IRS audits, so you can make informed decisions.
The IRS audit process
The IRS can conduct an audit by mail or by an in-person interview. If the audit is being conducted by mail, you will be informed about the need to provide the IRS with proof of income, expenses and deductions, among other possible records. Some of these records can be electronic produced by tax software. By law you should keep all records used when preparing your tax returns for three years, as that is the length of time the IRS can generally look back to audit.
If you need more time than given to respond to an audit, you can request in writing a one-time automatic 30-day extension. However, such an extension cannot be granted if you were mailed a “Notice of Deficiency.” If this is the case, you can work with the IRS to resolve the audit, but an extension may not be possible.
The results of an IRS audit
There are three ways an IRS audit can be resolved. One is “no change.” This means that you substantiated all parts of your tax filing that were being audited and no change will be made. A second is “agreed.” This means that the IRS proposed changes to your tax filing, and you agree with them. If so, you may owe money to the IRS. A third is “disagreed.” This means the IRS proposed changes to your tax filing, and you disagree with them. If you disagree you can ask for a meeting with an IRS manager. Mediation or an appeal may also be an option if you are still within the statute of limitations. IRS tax audits can be intimidating, but you can often make it through one with your rights and business intact.
