Knowledge is power. If you understand why the IRS selected your business for an audit and what the auditor will examine when he/she reviews your books and records, you can minimize the proposed IRS adjustments.
Are you in an industry that the IRS has targeted for audits? Are you aware that the IRS has published Audit Techniques Guides (ATGs)? These guides provide IRS examiners with insights into issues and accounting methods unique to specific industries. While these guides are designed to provide guidance for IRS employees, business owners can also benefit by understanding what issues are of concern to the IRS, what audit techniques will be used by the IRS agent, interview techniques used, and how the IRS evaluates its findings.
Some industries that the IRS has targeted include architects and landscape architects, art galleries, attorneys, business consultants, cash intensive businesses, child care providers, construction industry, employee healthcare coverage, executive compensation and fringe benefits, salary deduction limitations, non-qualified deferred compensation plans, passive activity losses, retail industry, veterinarians, etc. The full listing of industries for which the IRS has written an ATG can be found at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Audit-Techniques-Guides-(ATGs).
Note: Business owners who have been targeted with an ATG should read and be intimately familiar with the ATG for its industry and understand the issues that the IRS will review upon audit. By being prepared for an IRS audit, the business owner may be able to minimize both the time the IRS spends on the audit and any potential audit assessment. IRS agents are more apt to spend time when it finds a business that has ignored the ATG for its industry because it is like finding low hanging fruit . . . very little effort results in a significant tax assessment.
Because audits by any taxing jurisdiction are usually best handled by an experienced tax professional (a topic we discuss in part 3), we invite you to call 610-594-2601 today to make an appointment to discuss your audit exposure. You can also schedule a free consultation at http://www.keysolutions.us/consultation.htm.
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