How long have you felt “under the radar” when it comes to IRS audit risks?
With a historically understaffed and underfunded IRS, an audit probably wasn’t something on your worry list. After all, you’re just one out of how many businesses and individuals in the U.S. that the IRS can take notice of?
Not to throw a stone in your pond, but you might not feel that way for much longer.
Thanks to the 2022 Inflation Reduction Act 80 billion-plus cash infusion, we’re facing a newer, more technologically sophisticated, and more employee-powered IRS.
And thanks to innovative processes and their newfound ability to pay closer attention, you face a greater likelihood of being audited—especially if you trip their sensors with unreasonable claims or unclear, unsupported numbers on your return.
And thanks to another cash infusion—a whopping 60 billion in extra funding (over 10 years)—the IRS is no longer playing defense. They can afford to be more aggressive and more thorough. And they’re out there looking to collect… mostly from bad actors, but even from regular Mount Vernon businesses like yours if you didn’t do your part in reporting and paying.
Yes, the IRS is casting a wider net, and their sights are set on high-income individuals and businesses. If you’re in that bracket, it’s time to prepare for the possibility of an audit.
Especially because today’s technology makes their net-casting far more efficient. The IRS is using advanced data analytics to identify potential audit targets. They’re combing through your returns, your bank statements, and even your publicly accessible information— and all of these could be potential IRS audit risks if anything seems incongruous with what you claimed on your return.
On top of that, it’s not only the millionaires and big businesses who face IRS audit risks (though they definitely will). If your business is a C-corp, or if you are dallying with crypto and other digital asset acquisitions, the IRS is watching even more closely. They have already collected over 520 million from millionaires since mid-2023, and they’re not showing any signs of slowing down.
Now here’s why you should care about IRS audit risks:
An audit can have a number of effects on any individual or business owner. Besides the obvious financial strain, it’s a big time-sucker. The IRS will typically wrap an audit up in 3-6 months, but that timeframe can be extended if you provide incomplete information or if they find any issues to take a closer look at.
And, if you’re a business owner, an IRS audit also can damage the reputation of your Westchester County business if the audit goes south and word gets out. Customers (or potential customers) get suspicious of any business that gets in trouble with the government.
Then there’s the psychological and emotional stress it can put on you and your team as you scramble to get things sorted out.
If you know you’re behind on paying or made claims and didn’t have clear evidence to back them up, then this should scare you a little. But there are a few things you can do if an IRS audit risk becomes reality:
- Keep copies of everything. If you have to meet the government face to face, you’ll need to bring quite a few documents. These include a copy of your IRS audit letter, a copy of your tax return in question (and your returns from two years prior), a copy of any documentation you gave to your tax preparer and any other IRS letters or notices you got for the tax year in question. Plus, if you’ve had audits in the past, you’ll need documents that show the results from that.
- If you receive an IRS letter, do not ignore it. The IRS isn’t going to vanish any time soon, and your problem with them isn’t either. Read the IRS audit notice, and then read it again. Make certain you know what they want of you. If it doesn’t make sense, reach out to a professional you trust to sort it out for you (we’re happy to help here).
- Don’t reply to the notice unless the IRS asks you to. If the IRS audit notice mentions a change or correction on one of your previous returns, compare what the IRS claims with your copy of the right return. Call the phone number on the top of the notice if you have questions, and when you call have a copy of your tax return and the notice with you and take down the name and information of the IRS agent you speak with.
- If you have a dispute, mail a letter to the IRS. Be sure to include why you think the IRS did something incorrectly, and make sure to include the documents and relevant information to back it up. We can help you write it. The IRS audit notice will have the address where to write. Use a tracking system such as USPS Priority or Certified Mail. Give the IRS a month to get back to you.
Now, better than simply knowing what to do if an audit comes your way is knowing what you can do beforehand to help deter it. We can’t make guarantees that if you do A, B, and C, you won’t face an audit, but what we can do is help you spot the audit risks before the IRS does.
And, if you do end up getting audited, you’ll be more prepared to handle it. And we’re here to help you navigate through.
These new IRS audit risks are going to come into effect pretty soon, and you’ll need someone experienced in your corner. We’re happy to be that person for you:
calendly.com/l-karam/prospect-schedule
Here to help you hope for the best and prepare for the worst,
Lynn Karam