The sound of an IRS audit alone can bring company owners to their feet. There can be many reasons you’re facing an audit, especially if you have issues with independent contractor management. However, going through an audit only requires you to understand the process and your rights and responsibilities so that it will go smoothly.
Understanding an IRS Audit
What is an IRS Audit?
An IRS audit reviews an individual or company’s accounts or tax returns to check if all information provided is accurate. Facing an audit does not necessarily mean you are involved in dishonesty or fraudulent tax report. The companies selected may be chosen randomly. They use a statistical formula from a valid random sample of returns.
But if you are not honest with your tax report, you should expect to receive a letter from the IRS for an audit. If you are involved in dubious transactions with other taxpayers whose returns were selected for an audit, you may receive a request for an audit from the IRS, as well. Companies found to be non-compliant with employment and tax laws will face fines and penalties.
How Do They Notify You?
If your tax returns are subject to review, you will receive an email, not a telephone call. The email contains everything you need to submit for review. The IRS accepts digital copies from tax software. Transactions are done via mail. It can be a further document testifying to your eligibility for a tax deduction or exemption you filed for.
In some cases, you may have to appear for an interview. It is typical for businesses and organizations or individuals with complicated tax returns. The interview usually happens in their local office or your place of business. They will send a letter or multiple letters before the proposed date before they appear in your office. If they go to your office without notifying you first, you must be careful it isn’t a scam.
Another way is that you may answer a set of questionnaires, especially if you’re a self-employed individual. The questions typically ask about your travel expenses and business mileage.
You need to comply and submit all required documents within 90 days. If you need more time to organize the necessary documents, you may request a postponement. Usually, you are granted a one-time 30-day extension. The IRS can go back to three years after filing your tax returns. In some cases, they may go back as far as six years if they find serious errors in your tax returns. Results of an audit are usually generated using the Audit Techniques Guides.
What Factors Into How Long an Audit Takes?
How long an audit takes depends on the complexity of the issues, availability of requested documents, the type of audit, the availability of both parties to schedule meetings, and your acceptance or non-acceptance of the findings.
What Are Your Rights Regarding an Audit?
When facing an audit, you have a right to:
- Ask for an explanation of the audit process
- Request an explanation from the IRS’s national office on specific technical issues that arise during the audit
- Hire an attorney, CPA, or enrolled agent to represent you
- Claim additional deductions you didn’t initially claim on your tax return
Need Help With Independent Contractor Management?
Independent contractor management can be tricky and daunting, but our team at ClearPath is here to assist you. We utilize trusted software to make administrative tasks more manageable. You won’t have to worry about this aspect of your business anymore and just focus on day-to-day operations to yield positive outcomes. Call us today to learn more about how we can help you.