What will the IRS look for in a sales tax audit?
A sales tax audit is simply a situation when a government’s tax agency comes to examine a company’s tax documents to check for accuracy in remittance to the appropriate authorities.
Getting notified that your small business is about to be audited can be an unnerving and scary experience. However, most times, the fear of being audited usually stems from a lack of adequate knowledge and the presence of misconceptions.
One of such common misconceptions is the belief that just because you got an audit notice, it means that you or your company have done something wrong or committed a crime. Audits come to different companies for different reasons. It doesn’t automatically translate to mean you have committed an offense that you need to be punished for.
One important tip for dealing with a sales tax audit is understanding the audit objective. Why are you being audited?
Next, you should inform the key people in your organization (such as the heads of the finance department, and the tax department), putting them all on notice that a tax auditor is about to walk through the door. It is important that everyone be aware of the situation and what role they are expected to play.
Another essential thing to do during a sales tax audit is to review the past. Has your company ever been audited and what was the result of that? Identify any known issues and be prepared to address them.
If any issues came up the last time, you can rest assured that the auditor will bring it up again, so you should be proactive and address them early. Even if you can not solve the problems immediately, be aware of them to be able to answer the auditor when questions come up. The last thing you want during a sales tax audit is having unpleasant surprises springing up.
Next, get all the documentation that will you need organized properly. This will help the auditor get through it easily and seamlessly. It is also important to communicate with the auditor during the process. Having a professional relationship with your auditor will serve you way better than having an antagonistic relationship with them.
The letter/notice for an audit will usually come with information on the areas of your business that are being audited. It may include a request for records and information on those areas.
After you have provided the necessary documents and information needed, the auditor will rule out areas he believes were not handled properly. You will be given an opportunity to provide clarity and information where required.
Using the information you provided, the auditor will create new revised schedules or request for more information from you and the cycle will continue until he believes your schedules are complete and accurate.
You will then receive a final assessment known as the proposed assessment which is like an exit conference. This document will contain details on what you owe the state or tax jurisdiction according to your auditor (if the audit comes to the conclusion that you woe them any debts at all).
You can agree with this assessment or you can disagree. If you disagree, you may want to discuss it with the auditor to see if they will make changes. If that fails, you have the option of appealing the verdict with the IRS or going to court.
Sales tax audits can be quite beneficial to the structure and operations process of an organization. After the audit, you now have a clearer idea of what’s working in your organization and what’s not.
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