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What you need to know about the new reality of business audits

If there is one word that makes both individuals and businesspeople alike nervous, it's the word "audit." Even if you're certain that all of your ducks are in a row, knowing that IRS agents are poring over your tax documents is enough to make you lose a little sleep.

The fact is, in recent years even the IRS has felt the effects of the tightening of the economic belt, and Congress is not funding the agency as it did in years past. That means a substantial decrease in the number of audits being done. And that's good news, right? Yes, and no.

A new approach to audits

Given the fact that less funds - hence, fewer personnel - are available, the IRS has changed its approach to business audits. In the past, the country's largest corporations - meaning its biggest taxpayers - were subjected to continuous scrutiny, with IRS agents even being more or less permanently stationed in their corporate offices. With fewer agents and resources available, this is no longer possible; the IRS will now be conducting audit campaigns. These campaigns will target specific types of transactions and, while it hasn't been made public which specific transactions will be the focus of the campaigns, it's likely that international taxation issues will receive some attention.

How this may affect you

Although it's not a bad thing if the IRS isn't constantly looking over your shoulder, this new approach to audits has some disadvantages as well:

  • Many companies, over a period of years, developed a good rapport with the IRS team that worked with them. The agents had an intimate knowledge of the company's personnel, specific business, legal status, tax issues, etc. Individual agents were given a certain amount of discretion in handling matters, so there was room for flexibility and negotiation. Under the new arrangement, however, it's more likely that tax agents who are unfamiliar with the specific company will apply "across-the-board" rules and standards without taking into account the needs and circumstances of the business. It's also quite likely that the examining agents will not be the ones making the final decisions, or they will have little flexibility because of having to adhere to strict standards that have already been established.
  • Instead of being subjected to a single audit, a company may find itself facing multiple audits simultaneously if more than one campaign is being conducted that affect that particular business.

What you should do

Given this changing climate, the approach to audit defense must change as well. More than ever, it is essential to keep good, accurate, up-to-date records. Additionally, experienced, knowledgeable legal counsel is crucial. The attorneys at Kundra & Associates can help you navigate the tax labyrinth and achieve the best results for your business.

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