Business owners in Minnesota may benefit from learning more about which strategies could be effective if the IRS ever conducts an audit. Many people are surprised to learn that an owner’s personal assets may also be reviewed if a business is ever audited. Owners might be at a disadvantage if personal expenses become heavily scrutinized alongside the enterprise. Taxpayers might benefit from considering what factors are most often evaluated by IRS agents conducting an audit.
There are several circumstances that could potentially alert IRS agents who are reviewing businesses for potential audits. In order to avoid drawing the attention of the IRS, businesses who hire employees, opposed to independent contractors, need to ensure that payroll taxes match the numbers of workers claimed. Anyone who fails to properly report business income may become the target of an audit as well. Intentionally failing to report the appropriate items as income is considered to be a criminal offense.
People who fail to report $10,000 or more in business income may need an audit specialist and a reasonable explanation to avoid a potential jail sentence. Owners who use independent contractors in an effort to avoid paying payroll taxes for employees may also draw attention and be required to justify their business practices to the IRS. Businesses who deal in heavy amounts of cash or with a multitude of expenses might be audited by the IRS as well.
Taxpayers who find themselves at the center of an IRS audit investigation may benefit from seeking legal counsel as soon as possible. Tax lawyers might be able to provide a viable strategy to reduce penalties by negotiating an agreement or serving as an effective intermediary. Legal counsel might be able to provide a reasonable outlook and strategy for resolving any outstanding issue with the IRS.
Source: Findlaw, “Business Audits by the IRS“, September 04, 2014
This information is general in nature and should not be construed as tax or legal advice.