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Wondering “how far back” the Internal Revenue Service can dig into your books? You’re not alone. Small business owners worry about audit risk, audit triggers, and how much the IRS might look at. In this guide, we’ll learn what an IRS audit is, why the IRS can audit your business, and how many years a tax return remains open under the statute of limitations.
Understanding IRS Audits
An IRS audit is a review of your tax return to verify the amount of taxes reported and whether the deduction claims match your financial records. The Internal Revenue Service compares reported income with information from forms and may ask for a receipt or other proof. If discrepancies appear, the IRS will send IRS inquiries, and you’ll need to provide documentation to support your tax law positions.
What is an IRS Audit?
An IRS audit is a tax audit where an auditor evaluates a taxpayer’s income tax filings to confirm accuracy. The IRS audit process can be a correspondence review, an office meeting, or a field audit at your place of business. The goal is to determine if additional tax or a penalty applies. If selected for an audit, consider audit representation to navigate options and seek relief if appropriate.
Why Does the IRS Audit Businesses?
The IRS often audits to enforce tax law, reduce the tax gap, and ensure small business owners correctly file a tax return. If the IRS suspects underreported income or improper deduction claims, it may audit your returns. The IRS may review a specific tax year or multiple years from the date of filing when indicators suggest a potential audit could uncover unpaid tax, especially when failure to file is involved.
Common Audit Triggers
Common audit triggers include mismatched reported income, a … Read More
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