Are you being Audited?
Did you receive
a notice of examination
or general inquiry
from the Internal Revenue Service
or a state tax jurisdiction?
What are the next steps?
There are different types of tax examinations and not all are necessarily problematic. Generally, effected taxpayers will see the following which is not all inclusive.
Correspondence
Audit
This may be as simple as you left something off your return, third party data provided to a taxing jurisdiction doesn’t match your return, tax payments don’t match up, proof of filing, etc. It can be anything. We recommend to our clients that any such communication be sent to us to determine the course of action. Often times, such notices can be addressed with a letter but at times can lead to an expansion of the issue.
Office
Examination
This is clearly a more in-depth review of an issue(s) by an agent. It’s always best to engage a CPA to act as your intermediary and never contact a taxing authority directly. A well versed agent can trap a taxpayer through indirect queries. It can but doesn’t necessarily lead to a bad outcome but it will increase taxpayer anxiety and prolong a matter that could have been resolved more efficiently.
Field
Examination
Outside of a business that has competent tax representation in house, this type of examination should never be handled directly by the taxpayer. Field examinations are best handled by a tax professional at his/her office. There are a number of reasons for this.
Unless an agent is expecting information requested prior in written communication, you are not required to provide documentation on a moment’s notice. This is where self-representation can be problematic when trying to appease an examiner. Get all queries in writing and respond accordingly by engaging your tax professional. It can be a disadvantage having key information immediately available on request. Allowing your tax professional to engage directly with an examiner off your premises is always the proper course of action.
State Nexus
Questionnaires
This type of communication can result in bad or incorrect outcomes. They are generally written to trap taxpayers that don’t understand income or sales tax nexus law. Seemingly innocent questions and responses can lead to a fully blown tax examination where incomplete returns are filed and/or back year, non-filing issues are brought into contention. Therefore, taxpayers must be extremely careful and not respond directly and immediately send this to a tax professional well versed in these issues.
The professionals at Axiom have represented many taxpayers throughout the years at the Federal and state level. When we get a new client, we immediately review prior tax returns, positions taken, and discuss problem areas, if any. Examinations will come for no apparent reason and there’s nothing that can be done except respond to it. However, examinations often result from filing incomplete returns, applying improper tax accounting methods, or taking incorrect/aggressive tax positions. We can assist you in navigating these issues.