How outsource accounting prepares clients for IRS audits

One of the letters that makes most business owner’s and accountants heart sink is that from an Auditor’s office (IRS, sales & use tax).  Getting audited can be time consuming and stressful.  However, there are some steps you can take to make the process easier for yourself and the auditor.

First thing you must know, compliance is mandatory.  

IRS Audit

The following is a checklist of some of the key documents you should have available.  By carefully reviewing the IRS Audit Notice, you should be able to determine what documents you need to collect.  If a tax preparer prepared your return, be sure to notify her and ask her to attend an initial meeting with the Auditor.  You or your tax preparer should have some of these key documents available for the auditor. 

• Have a copy of your tax return, for the year being audited
• Sales records that tie to the revenues on the return
• Receipts for purchases, charitable contributions and business expenses
• Asset ledger for all assets on your books

Bank statements

• 1099 and W2 for all wages or contract labor expenses
• Loan records, minutes, articles of incorporation (if applicable)

Sales & Use Tax Audit

The following is a checklist of some of the key documents you should have available for the auditor.  Although this is not a comprehensive list, this will give you a good starting point.

• Sales record that ties to your books and ties to your sales tax return
• Bank statements that show deposits that tie to your sales, per sales tax return
• A copy of your income tax return, which should also have the same sales as that on your sales tax returns and books
• An accounting record of your sales tax payable account to show the sales tax actually remitted
• A copy of your trial balance, general ledger and sales journals
• Copies of invoices and credit memos
• Exemption certificates from customers claiming tax exemption
• Records of purchases that were made from out of state vendors for anything that was not re-sold to your customers
• Records of any internet based purchases
• A ledger of all purchases of fixed assets and fixed asset additions

In all cases of an Audit, the key to helping the process along is to provide all information that is being requested in a timely and orderly fashion.  If you cannot locate certain information, you may request for more time.   If possible, organize your documents by date and by category, to make it easy for the Auditor to quickly find the information she needs. 

Disclaimer:  this information is intended to provide you with general guidelines.  LUXA does not provide tax services nor tax audit advice.  We strongly recommend you adhere to IRS guidelines for accounting record retention policies, and always follow up directly with your tax advisor when receiving an audit notification. LUXA Enterprises is an outsource accounting firm based in Tulsa, OK. To get more helpful bookkeeping advice visit our blog where we discuss this and more on Tulsa bookkeeping.

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