Tips For Surviving An Audit
Feb 03, 2015
One of my clients was randomly selected for an NRP (National Research Program) audit. According to the IRS, “the goal is to design and implement a successful strategy to collect data that will be used to measure payment, filing and reporting compliance and to deliver the data to the Business Operation Divisions to meet a wide range of needs including support for the development of strategic plans and improvements in workload identification.” Some of you may have heard of a TCMP audit, or a taxpayer compliance measurement program audit. The NRP audit has now replaced the TCMP audit. Here are a few tips to make your life easier when going through an audit.
Do not ignore the request. Usually, you are given 30 days to respond, so make sure to write back promptly or certain items may be disallowed or automatically corrected. Prompt response will get you started off the on the right foot.
Organize your records. As CPA’s we tell our clients the importance of keeping good records and providing support for your income and expenses. This is never more true than when going through an audit. Generally, an auditor is looking for two main things: One, that the expenses you reported really were business-related, and two, that you have actually reported all your income.
Keep receipts to support all of your expenses, i.e. supplies, repairs, payroll, maintenance, etc. and keep an accurate income record. If you have reasonable receipts to support the expenses taken you will very easily get through an audit.
Obtain the information you need for disputed items. On the flip side, if you do not have the supporting materials for your expenses, the IRS will disallow those expenses. That will leave you in a panic trying to find something to support that expense. Create either a manual or electronic folder and place receipts by category and by year into that folder. Document on that receipt the business purpose if not apparent. Make sure it is a detailed receipt that shows what the purchases were. Then all you have to do is provide that folder. That is a lot easier than trying to recreate the facts years later.
Be nice. IRS auditors are not always welcomed with open arms. Being friendly can go a long way and can sometimes mean the difference between winning and losing.
The chance of being audited is rather slim, but it does happen! If you do your part to make, the process can be less painful. Stay organized and be honest. For more on the audit process, be sure to check out IRS Publication 556.
By: Tara West, CPA, CMA