How a Small Business CPA Can Protect You From an Audit
2018-08-15 | by Gene Reynolds
Receiving an audit notice from the IRS is not the ideal interruption to your day running a small business. Fortunately, a small business CPA can protect you and make the process easier to fulfill the request from the IRS.
Specifically, a CPA can represent your company in an audit. The IRS considers CPAs to be credentialed tax professionals who have “unlimited representation rights” for their clients.
Audit support and representation is especially important depending on which type of audit you are faced with.
A CPA Can Address Each Type of Audit
The IRS will inform you whether you are facing one of these four types of audits:
- Correspondence Audit (basic)
- Office Audit (complex)
- Field Audit (serious)
- Random Audit (randomly-selected review)
Addressing a Correspondence Audit
When you receive notice of a correspondence audit, the IRS Is looking to clarify specific items in your tax return. Perhaps they need additional information about a calculation, a document, or a line item included in your return.
Proper record-keeping and evidential data are critical to satisfying a correspondence audit. You need to be able to prove and validate the item(s) the IRS is questioning.
A small business CPA can help you satisfy the request. If you have proper records, a CPA can review documentation and address the concern with the IRS. If you do not have adequate records, a CPA can gather together your receipts, data, and any other financial information to assemble an answer to present to the IRS.
When the IRS is satisfied with your company’s response to the audit request, the issue is resolved and you can return to running your small business with peace of mind.
Addressing an Office Audit
An office audit can be inconvenient when running a business. The IRS will request that you visit one of their field offices near your location to review your tax return.
In this case, the IRS is looking beyond specific items that are typically addressed in a correspondence audit; they are looking at more complex issues about how you recorded and reported the financial activity of your business.
Similar to a correspondence audit, recordkeeping is critical for proving the information on your tax return.
Fortunately, a CPA can help with the process by reviewing your records, providing guidance on how to satisfy the IRS audit request, and represent you at the field office to knowledgeably answer the IRS agent’s questions. You do not have to go at it alone when working with a CPA.
Addressing a Field Audit
A field audit is the most serious audit request. The IRS is not only concerned about your tax return, they are also concerned about the legitimacy of your company.
In this case, the IRS agent will schedule a time to visit your place of business and evaluate whether your operation is valid. You do not want to try satisfying the request on your own.
A CPA will represent you to address the field agent’s questions, help you provide satisfactory answers, and review your company’s documentation with the agent to prove the validity of your operation.
Addressing a Random Audit
Outside of the scale of basic to serious audit situations, the IRS will occasionally perform a random audit of your business. The IRS does not have a specific item they need to validate, as they are looking to test the overall accuracy of your financials.
Because the IRS Is not asking to validate a specific item, you need to have reliable records of all of your business activity. Proper recordkeeping will ensure that you can satisfy the general request from the IRS.
Working with a small business CPA will enable you to validate your records and satisfy the request in the shortest amount of time so that you can re-focus on your business.
Reynolds and Associates Can Address Each Type of IRS Audit
Reynolds and Associates is fully-equipped to support small businesses when faced with an audit. Our experience representing small business owners and working with the IRS enables us to help resolve audit requests in a timely manner.
No matter which type of audit you are faced with, we would appreciate the opportunity to discuss your specific needs to start the process of satisfying the IRS request to protect your business.
To schedule a free consultation, reach out to our team either by email at firstname.lastname@example.org or by completing our Contact Form.
About the Author
Gene is the Founder and President of Reynolds and Associates, a Houston-based CPA Firm. He has spent 42 years helping Houston entrepreneurs navigate their enterprises thru both calm and stormy waters.