About IRS Audit Business Plans
The Internal Revenue Service (IRS) has focused its annual tax audits on small and medium-sized businesses in recent years. While the IRS audits about one out of every fifty individual returns, this rate increases for businesses with a long list of tax liabilities and credits. The IRS does not enter an audit without a plan nor does it leave a business owner completely in the dark about the nature of the audit. An audit plan available from the Large and Medium-Size Business Division of the IRS is necessary to set parameters for an ongoing audit.
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Function
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Every IRS audit plan is designed to establish the rights of business owners and provide a compass for the lead IRS investigator. Once the business audit plan is negotiated between both sides, the IRS has to stick to the scope of the document during the investigation. While business owners may seem cornered during IRS audits, agents need to renegotiate the business audit plan if they drop queries during the investigation or find other inconsistencies during the investigation. The series of preliminary discussions and meetings held between the agent and a business owner can ensure that the IRS is given resources appropriate for its investigation without disrupting a company's daily operations.
Features
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The top of an IRS audit plan contains the review year, the subject of the audit as well as the IRS agent and team manager involved in the investigation. The plan is broken down into categories outlining the scope of an audit, the timetable for the investigation as well as pre-audit tasks that must be completed by both sides. Each section is designed to eliminate extraneous steps that cost taxpayers money and take IRS agents away from additional tasks. For example, the preliminary meeting section of an audit plan encourages the agent and the business owner to go through applicable tax returns to focus largely on tax credits that raise red flags.
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Time Frame
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The timetable laid out in a company's IRS audit plan depends on the scope of the investigation, the workload of regional IRA agents and business problems that arise during the investigation. Businesses that are subjected to IRS audits should expect to spend several weeks minimum working with the IRS investigators. This time is spent reviewing receipts, going through ledgers and determining if the tax return matches the financial situation at the business. Some audits can last several months if IRS agents discover that additional violations of tax law have occurred outside of the parameters of the business audit plan. Business owners see light at the end of the audit tunnel because IRS agents are required to inform audit targets of potential penalties resulting from their investigations.
Considerations
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A business owner should seek legal and accounting help as soon as they find out about an IRS audit. An attorney well versed in tax law can help his corporate client sort through contracts, correspondence and archived documents for a smoother audit. Businesses can also ask independent accountants and accounting firms to conduct third-party audits that can clear up clerical errors on tax returns. The best approach for a business owner working with the IRS on an audit plan is organizing supporting documents prior to the investigation to avoid long delays on final judgments.
Size
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Entrepreneurs and IRS agents use business audit plans to determine the size and scope of an investigation. The basis for the depth and breadth of an audit is the number of inconsistencies discovered in a company's return by the IRS. The lead IRS agent discusses each inconsistency with the business owner and requests the retrieval of documents to support tax return information. If the business audit plan spans a small number of sizable inconsistencies, the IRS agent in charge may be able to complete the work without much assistance. Most business audits require teams of attorneys and accountants from IRS field offices to expedite the process while maintaining consistency from investigation to investigation.
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Resources
- Photo Credit Photo by Mike Chaput (Flickr)
