Making a mistake during an IRS audit can be costly, from additional taxes to deep-pocket fines. Unfortunately, mistakes made by taxpayers are all too common when the IRS shows up for an audit.
If you’ve ever found yourself in the unfortunate situation of being audited by the Internal Revenue Service (IRS), it’s important that you understand some of the most common errors people make that could seriously cost them in terms of time and money.
In this blog post, we’ll run through 5 common mistakes which can help ensure any taxpayer dealing with an IRS audit is properly represented and reduces the risk of trouble down the line.
Not being prepared for the audit – having all necessary documentation and records readily available
Failing to be prepared for a tax audit can be incredibly costly, both in terms of your time and the financial penalties that may be imposed by the tax authority.
Making sure you have all necessary documents and records on hand before undergoing an audit is essential in ensuring it will proceed without any major hiccups.
This means being aware of which tax records need to be kept for how long, as well as whether there are any specific requirements for tax-related filing in your jurisdiction.
Being prepared will make all the difference when it comes to saving valuable time and money, and possibly avoiding a potentially difficult confrontation with tax authorities – so don’t sacrifice it!
Not having a qualified representative present during the audit session
Nobody likes getting audited, so it makes it all the more difficult when you don’t have someone qualified to represent you during the audit session.
Without a skilled representative, you could easily miss out on important points and put yourself in a worse financial situation than if you had the assistance of an expert.
This is especially pertinent for businesses that may not be well-versed in accounting and tax law. As such, having a qualified representative there during the audit can prove absolutely invaluable; they can help ensure that your rights are protected throughout the process and that any mistakes are caught early on.
Misrepresenting facts in documents or understating income or assets
Misrepresenting facts in documents or otherwise understating income or assets is a form of fraud that can have serious consequences for both businesses and individuals.
Not only does this type of dishonesty constitute a criminal offense, but it often involves the false creation or falsification of records, meaning the potential exists for record-keeping violations as well.
Additionally, the IRS and other government entities take these types of actions very seriously; those found guilty face hefty fines, penalties, and even jail time depending on the severity of the crime.
Is it worth it? The answer is ‘100% NO’.
It’s ultimately not only unethical but also unwise to attempt to circumvent due diligence by deliberately misrepresenting financial information. This will only create massive headaches for you down the line in more ways than one.
Omitting information that could be relevant to the IRS audit
Auditing is an important part of any financial plan and omitting relevant information can be detrimental to the process. Without proper disclosure of all relevant information, an auditor is unable to perform their duties with accuracy, resulting in inaccuracies that could have a lasting detrimental effect on the finances of a company.
To protect their own interests and those of the clients who rely on them for accurate audit results, companies should ensure that all pertinent information related to the audit is disclosed in full.
Doing this will go a long way towards protecting both parties and ultimately result in better audits overall.
The easiest way to make sure that you have all of your documentation in order is to work with a qualified professional throughout the process.
At BSM Accounting, we’ve helped dozens of clients settle their debt successfully.
Failing to resolve issues with the IRS auditor in a timely manner
Poor communication between a business and its auditor is dangerous. Ignoring issues that arise during an audit can delay the completion of the process and hurt the business’s integrity with financial authorities.
By taking prompt action to update procedures and provide the necessary documentation, businesses can maintain a productive relationship with its auditor and prevent prolonged delays.
A good relationship also enables businesses to receive helpful information about new regulations and other compliance matters that may present opportunities as well as challenges.
Failing to resolve issues in a timely manner signals neglect that could lead to repercussions both immediate and long-lasting.
Allocating time and resources to effectively prepare for an audit is a critical step in ensuring that your business is presented in the best possible light. Being familiar with the auditing process, being prepared with records and documents, having a qualified representative present, and representing facts accurately can all help minimize disruptions during audit sessions.
Facing an audit from the IRS? Book a call with one of our experts.
Received a notice 1450 from the IRS? Read this article.