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IRS Small Business Compliance Audits - Know Your Rights

Over the next few months, 50,000 taxpayers (including some 30,000 small business owners who file Schedule Cs) will be audited by the Internal Revenue Service to compile information about taxpayer compliance. These audits are part of the National Research Program (NRP), a comprehensive effort to measure payment, filing, and reporting compliance for different types of taxes and various sets of taxpayers.

The NRP's purpose is to help the IRS build better compliance programs to more effectively catch tax cheating and help ensure everyone pays a fair share. Although the primary purpose of the NRP's discretionary audits is to gather information, their effects are as real as any enforcement audit.

Any disparities that are uncovered during these audits may result in additional taxes, fines, and penalties. Revenue agents will collect as much information about the taxpayer as possible prior to the face-to-face audit interview. This means that the agent will already know a formidable amount about you and your business and can rule out some items before the audit even starts.

If you are selected for an audit, we recommend you do the following:

Read All Materials Carefully.
The IRS materials should inform you of your rights, the scope of the audits, and the materials and process they will use to get the information they need.

Familiarize Yourself With Your Current and Past Returns.
Take time and be thoroughly familiar with your recent returns. By doing your homework before the audit, you can anticipate questions that might arise and reacquaint yourself with the facts and decisions that support your return.

When in Doubt, Seek Professional Advice.
Unfortunately, any audit will cost you time and, quite likely, money. The IRS examiners are skillful and will be thoroughly briefed on your tax history. If you are uncertain about items on your return, consult a professional or have them represent you at the audit. We can help you find a tax accountant or a tax lawyer to assist you.

Stop, Look and Listen!
You may want to interrupt the audit interview if you feel that the questions are unclear or beyond what you thought would be covered in the audit. You have the right to ask for clarification from the examiner or the supervisor. Also, you can ask to stop the interview, leave, and schedule another appointment to allow you time to review the facts more closely or seek professional advice and other information as appropriate.

I would like to thank Giovanni Coratolo and the Small Business Affairs Council of the United States Chamber of Commerce for providing us with this information.

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