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What to do in the case of an Internal Revenue Services tax audit

| Feb 23, 2021 | Internal Revenue Service

Citizens are under a compulsory obligation to pay their taxes when they fall due. Failure to pay taxes is an act that is taken seriously by the Department of Revenue. However, even upon paying taxes, it is possible that the DOR will feel that the taxes paid to them are not sufficient or commensurate with your business arrangement.

The suspicion is likely to be on one of three fronts. One, the documentation given by you has unexplained gaps. Two, your business largely deals with cash transaction and the tax master reasonably believes that the taxes remitted do not match your tax returns. Three, through external parties, the DOR has been notified about your financial arrangements. An example would be banks sending notices that you have deposited $10,000 or more in your accounts.

When these situations arise, the DOR will send notices to such taxpayers.

What to do upon receiving a notice from IRS

When a notice by the IRS has been sent to you, there are certain salient considerations that you need to take note of.

1. What is the set deadline?

When a notice of audit is sent, it gives a deadline to comply with the notice. You need to ensure you comply within the defined period. If unable to do so, you must expressly ask for an extension.

2. Limits of the notice

Be sure that you check the limits of the notice. This is vital as it enables you prepare appropriately. Knowing what is required of you is important to protect you from overreaching tax agents who might be on a fishing expedition. 

3. Housekeeping

When you know you are about to be audited it is important to arrange all the necessary books of account and find all available paperwork to ensure you are not caught flat-footed. Make sure you get the original documents and extract copies, but don’t hand over any original document as you are not assured will be returned. Don’t destroy any documents or make alterations that might constitute an offense. When in doubt as to what you are expected to do, please consult professionals who will be able to actively guide you.

An intention to audit by the IRS doesn’t necessarily mean that you are guilty of any offense. Therefore, it is very important not to make hasty decisions that will create a problem that was not there in the first place. Whenever you receive the notice, ensure that you promptly comply with the demands.

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