Why Accounting Audit Firm is Important in IRS Audits?

The Internal Revenue Service (IRS) is the revenue service of the United States federal government. The government organization is a bureau of the Department of the Treasury and is under the direct management of the Commissioner of Internal Revenue, who is assigned to a five-year term by the President of the United States. It was founded on July 1st, 1862. Its headquarters is in Washington D.C, U.S.A.

What's an IRS Audit?

An IRS income tax audit is an investigation of individual or business tax returns by the IRS (Internal Revenue Service) in the United States of America. The Internal Revenue Service department uses term audit, inspect, review, etc to explain the different features of implementation and administration of the taxation law.

An IRS audit is done to determine whether the reports submitted to taxing authorities are correct or not. The tax agencies then point out and resolve taxpayer errors.

How IRS Select Individuals for Audit

1. Random Selection

2. Discriminant Index Function System (DIF)

3. Unreported Income Discriminant Index Function System (UI DIF)

4. Third-Party Documentation

Three Types of IRS Audit

1. Correspondence Audits: In a correspondence audit, the IRS sends the taxpayer a written request by mail for supplemental information about a particular item or issue on their tax return.

2. Office Audits: In-office audit is simpler, in this type the taxpayer is requested to come to the IRS office and bring specific documents.

3. Field Audits: In a field audit, the IRS representative comes to your office and can demand any kind of documents, forms, or record of the previous years’ tax return. This kind of audit is more thorough.

*The IRS never calls for an audit. If you receive a phone message or call stating that you owe the IRS Audit and must pay money immediately, that is most likely a scam.

How to Prepare for the IRS Audit

1. When you receive an audit application, first reach out to your tax return preparer or tax advisor before you answer. Even a simple IRS letter demanding a document could be a signal of a potential problem. It's always best to review the request with someone who can help you write an answer.

2. Organize your records. IRS auditors can enforce penalties on your business for poor records. Systematize accounts by year and by type (income, expenses, pension plans, etc.). Make sure all important records are ready

3. Make every effort to restore lost or destroyed records,

4. Be assured that you don't have any personal expenses in your business records. You should keep personal and business expenses separate.

5. Don't bring original documents to the audit. If you do bring originals, do not give them to the agent.

Why Self-Representation IRS Audits Result in Unproductive Measure

1. You have to waste a lot of your valuable business time.

2. You are going to drain your energies.

3. You could get trapped in the audit sinkhole.

So when you receive a notification for an audit from the IRS, naturally the fear sets in. It’s a wise decision to contact a professional audit expert.

The IRS states you need someone with experience at practicing before the Internal Revenue Service.

A tax audit professional can help you navigate an IRS audit and communicate with the IRS. In the situation when your tax return has been chosen for an audit, you are qualified for a skilled portrayal. An audit professional can ensure that the audit remains focused, and you don’t need to manage the IRS or state all by yourself. They know well about income tax rules for purposes of proper reporting on income tax expense and income tax payable (refundable) in a company’s financial statements, accounting, preparation of tax returns, and tax planning are the forte of them.