A friend said she received a notice that her business (a quilt shop) was going to be audited by the IRS. This is to be an office audit where she will go to the IRS office. She asked some questions about IRS audits, and I wanted to share my responses with you:
1. Do I need an attorney for the audit? It is very important that you have someone to represent you at an office audit or field audit. The best person to help you deal with an audit is the person who prepared your business taxes, because this person is familiar with your business. You can also hire a CPA , enrolled agent, or tax attorney to help you with the audit. Read more about who can represent a taxpayer in an audit.
2. Can the IRS audit my entire business? The IRS usually restricts itself to a specific purpose at an office audit, but they can always expand the audit if they want to search further in the specific year's records, or go back to previous years.
3. What do I do before the audit? Most important, after finding someone to represent you, is to get all records together as quickly as possible. If records are missing, try to reconstruct them from backups or from other sources, like your bank or credit card company. If the audit is focusing on a specific issue, provide only records related to that issue and that year. Don't give more than you are asked for.
3. What do I say to IRS questions? Let your representative answer as many questions as possible. If you are asked a direct question, and your representative says you can answer, just answer the question. Then stop. Don't volunteer any information. If you don't know, say so. If you don't have a record, briefly discuss your efforts to get it.
4. What's the most important thing to remember about an IRS audit? Stay calm and be pleasant. Your attitude should be one of co-operation.
More about preparing for an IRS audit