What Information Will the IRS Review When Auditing a Business?

 Posted on November 23, 2021 in Taxation Law

There are a variety of reasons why the IRS may choose to perform a tax audit on a business. While some audits may be performed as a matter of routine, others may be triggered by discrepancies on tax returns or the claiming of certain types of deductions or business losses. Business owners will want to understand the procedures followed during an audit and the types of documents and information the IRS will consider. By working with a tax law attorney, a business can determine the best ways to meet the IRS’s requirements and avoid or minimize its potential penalties.

Records and Documents the IRS May Request During an Audit

In many cases, audits of businesses will be conducted by mail, although there are some situations where the IRS will choose to perform a field audit in which an agent will visit a business and review information in-person. During an audit, the IRS will review certain types of records to determine whether there are any discrepancies between the business’s finances and what was reported on a tax return. The IRS may ask a business to provide multiple different types of records, including:

• Financial records - The IRS will review a business’s books to address any issues related to earnings, expenses, profits, and losses. Additional documents may also be provided to verify this information, such as bills or receipts for business expenses, purchase records for equipment or materials, or canceled checks for payments made to vendors, suppliers, or contractors.

• Loan documents - A business may need to provide information about any loans it has received, including the amount borrowed, the terms of the loan, the interest paid, and how the money was used.

• Travel logs and receipts - When deductions are claimed for travel expenses, the IRS may look at information that addresses the purpose of travel, the miles traveled, and the costs of airfare or lodging.

• Employment records - The IRS may review W-2 forms and other wage statements, as well as records related to the benefits provided to employees or reimbursement for employee expenses.

• Documents related to thefts or other losses - If a business has reported losses due to the theft or destruction of property, it may need to provide documentation of these losses, including records related to insurance coverage for fire damage or natural disasters or police records related to theft.

Contact Our San Jose Business Tax Audit Attorney

While audits can be worrisome for business owners, they can protect themselves by making sure they maintain the proper records and provide accurate information to the IRS. If you have received notice of an audit from the IRS, John D. Teter Law Offices can help you determine how to proceed. We will review your records to determine whether there are any issues that may cause the IRS to seek payment or impose penalties, and we will provide you with legal representation to protect your rights and determine how best to resolve these issues. For legal help with tax-related issues that affect businesses, contact our San Jose, CA tax audit lawyer today by calling 408-866-1810.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/audits-records-request

https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/irs-business-tax-audit/

https://www.fundera.com/blog/irs-audit