Welcome to the Tax Insights Podcast, where we break down complex tax topics into bite-sized how-tos. In this episode, Jeff Dvorachek clarifies the audit process for business owners, noting that audits are often routine. He covers the three-year timeline, common triggers, and the value of professional help. Tune in for key tips on handling audits.
On today’s episode of Tax Insights, Jeff breaks down the audit process for business owners. He explains that audits are often routine checks, not indicators of wrongdoing. Jeff covers the three-year audit timeline, common triggers, and the role of professional help. He also advises against refusing an audit to avoid complications. Tune in for essential audit tips.
Host: Today, we have an interesting topic for business owners out there—being audited. Jeff, a lot of times people think that if they get a notification that they are going to be audited, they start to freak out. Should they? What should they do? Walk us through this because there’s a lot here to talk about.
Jeff: You’re right. One of the things the IRS needs is a compliance arm to ensure people are doing things right. Just because you’re being audited doesn’t necessarily mean that the IRS thinks you’re doing something wrong. They simply want to make sure everything is being done the way it’s supposed to be. There might be something in your data, like an unusually high amount of deductions or charitable contributions, that triggered the audit. But if everything is legitimate, you just need to go through the process and see where it ends up.
Host: So, how long does it take for someone to get audited? What’s that process like?
Jeff: The IRS can audit you for up to three years from the date of your return. For state audits, it could be three, four, or sometimes even longer. If there’s fraud involved, the period can extend to six years or even be unlimited. They do have some latitude to go back quite a few years.
Host: Good information. What are some of the reasons someone might get audited? Is it random, or are there specific triggers?
Jeff: Sometimes it’s random, but there are specific triggers. The IRS uses parameters to determine what a business of a certain size should have in terms of wages, office expenses, and other factors. If a business’s numbers deviate significantly from these parameters, it might draw the IRS’s attention. This doesn’t necessarily mean an audit will follow, but it could prompt a closer look. If they decide to audit, that’s when the letter arrives.
Host: When you get that letter, does it mean someone from the IRS is actually coming to your business? I guess my vision is that someone shows up with a briefcase and says, “I’m here to audit you.”
Jeff: Sometimes that’s the case. You might receive a letter asking for a lot of information, and they might request a site visit to walk through and see how your business operates. What we try to do as professionals is have the IRS conduct that site visit, but handle the rest of the audit process at our office to keep things neutral.
Host: Last question, Jeff—can you refuse an audit? Can you say, “No thanks, I’m good”?
Jeff: Technically, you could refuse, but I wouldn’t recommend it. Not cooperating with an audit could lead to further complications and penalties.
Host: Jeff, good information. Listeners, if you need to connect with Hawkins Ash, Jeff, tell us how to do that.
Jeff: Just go to HawkinsAsh.CPA and explore the content on our CPA-HQ section.
