Taking the Headache Out Of a Corporate Tax Audit
In November of 2009 the IRS announced the Employment Tax National Research Project (ET NRP), which is the first study of its kind in 25 years related to payroll and employment tax issues. The IRS plans to randomly audit up to 6,000 companies in the next three years, with a direct focus on employment tax, worker classification, officer compensation, benefits and expense reimbursement. The IRS has already sent out of first batch of alert letters, letting companies know that they have been selected for an audit. A short video from Pillsbury, a national full-service law firm, briefly outlines for its clients some of the major issues involved.
If your business has been audited by the IRS, you’re not alone. According to IRS statistics, anywhere from .38% to 14.55% of businesses are audited annually (see data grid below). The government’s exact method for choosing who is audited remains a well-kept secret. However, the IRS boldly warned in a 2007 report that some business types are more likely to be audited than others. The IRS report states that “While large corporate audits are down slightly, we have increased our focus on mid-market those with assets between $10 million and $50 million dollars.” See specific IRS service and enforcement tables here. Into what category does your business fall, and how likely are you to be audited? What’s your worst fear in an audit? Are you prepared for it?
The burden of proof during an audit lies with you, the business owner, and the depth of records required by the IRS can be time-consuming and onerous at best. AllBusiness.com posted an aptly titled article, “To Hell and Back: Different Types of Tax Audits”, which documents the extensive information that the IRS requires during a business audit. The IRS provides their auditors with specific guidelines to follow during a business audit that is industry specific. Do you know what your potential future auditor may ask of you? Become more prepared and look for your guide here.
Don’t be another IRS statistic
Audits are costly. The expense to your business will be massive, and the strain on your valuable employees even more so. Regardless of the kind of audit you may experience, it’s always helpful to have the information you need at your fingertips. Ascentis online payroll and HR software (HRIS) offers robust core functionality that supports the electronic documentation of most, if not all, employment and payroll related data you will need during an audit. Ascentis integrated systems include standard and customized reporting engines so HR and payroll teams can provide the specific and detailed data that audits often require.
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