Small Biz Tip: Taxes: Audits

Tips from March 11, 2010

The Small Business tips today discuss types of tax audits.

  1. Correspondence Audit: Simple procedure. The IRS requests you to document an item on your return by a specific date. Routine test for compliance.
  2. Field Audit: The dreaded audit. IRS asks for documentation of various items on your return and meet with an IRS agent for thorough review of records. Be prepared to answer questions and have all paperwork needed.
  3. Taxpayer Compliance Measurement Program Audit: Lengthy and detailed. Document and provide proof for every single item in your return. IRS and Congress use this for research and statistics, and are arbitrary regardless of how careful and perfect your tax return is. 
  4. Criminal Investigation Audit: Suspicion of tax evasion. The IRS will try to prove you have purposefully not paid your income taxes. If they are successful, you can face large fines and jail time. If you face this type of audit, you should retain qualified legal counsel.

Daily Overview: There are several types of audits, from complex reviews to cover every aspect of your business to simple requests for a survey. Don't panic if you hear you are being audited. Stay calm, find out all the information, and proceed from there.