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Tax Law: What to Expect if Your Small Business is Audited

Posted on in Small Business Taxes

As a small business owner, you are required to understand and adhere to the myriad of laws that affect your business, including both federal and state tax laws.

Even when you are confident that you are in compliance with all applicable regulations and requirements, finding out that your business is being audited is unnerving. Know that the fact your business was selected for an audit does not necessarily mean your filings have been flagged by the IRS, state or local tax authorities; you may have just won the tax audit random selection lottery (which is, unfortunately, not nearly as fun as winning the powerball.)

If you are selected for an audit, know that you have a number of rights during the audit process, including the right to professional and courteous treatment, the right to privacy and confidentiality, the right to know why certain information is requested, the right to appeal, and the right to representation.

Most audits are conducted as "correspondence" audits, meaning they occur entirely through the mail, starting with an initial notice and request for documents. Still others require the business owner/taxpayer to visit a tax office for an interview. A small subset of audits are conducted as "field exams", meaning the auditors are physically present at your business.

In any type of audit, always be honest and straightforward, however it may be advisable to retain legal counsel to help ensure your responses are on point and limited to the information requested. If you inadvertently send too much information in response to a question, it could not only slow the process but the scope of the audit could be expanded.

If you have been selected for an audit, or if you have any questions about small business taxation, contact us for a consultation.

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