Business Tax Audits and How They Are Different

An IRS business audit exposes many more areas of inquiry than a personal audit. This is because business tax returns are much broader than personal returns.  Business tax audits include Schedule C businesses, 1120S Corporations and C Corporations. 

Here are things you will want your audit defense team to offer:

They must appear at the audit in your place
They must never allow the small business owner to speak to the IRS--this preserves the integrity of the defense, keeping unsaid the things that should never be said to an IRS auditor
They should guard against Shareholder Derivative Suits (suits brought by an existing shareholder on behalf of the company against the officers and directors of the company. The cause of action for this kind of suit is grounded on an alleged breach of fiduciary duty. Because these kinds of suits are becoming increasingly common and they grow more risky, it would be wise to secure expert and competent lawyers to handle your defense
If an informant has given information to the IRS (think angry ex-spouse or business partner), your audit defense team must obtain their statement and contradict where necessary
If your business has complex investment or business expenses on its tax return the audit defense team must consist of attorneys who are highly experienced in the area of transaction law and its tax effect
If you have complex tax transactions without explanations on your tax return then your audit defense team must be prepared to address those complexities at the first meeting with the IRS
If an IRS auditor wants to come to your place of business and talk to your customers or clients you should call your defense team without delay and have them take over the issue

So what's your business bottom line?  First, an IRS business tax audit  calls for a substantially different approach than the type of audit faced by individual taxpayers.  Second, you as the business owner must determine that your business audit team has the know-how and experience to effectively defend your business tax return.  Without the proper documentation and witness preparation your business is at risk.

by: John Ellsworth, Attorney at Law at IRS-SOLV. Thank you.

Want to know more? Come to IRS-SOLV and find out the other things every business owner must consider at tax audit time.