A few months ago I finished working on one of the most challenging projects I have ever worked on as an entrepreneur: an audit by the IRS that lasted more than two years. Not knowing what to expect and learning about the intricacies that exist within the tax code was an eye-opening experience. These tips can help you navigate the process.
Hire an experienced professional. Just because someone is a licensed CPA does not mean that you can trust that your returns are being prepared properly. In my situation, preparation errors lead to a return being flagged for additional review, which in turn caused all my returns within the statute of limitations to be audited because the same accountant prepared all of them.
Get a second, third and possibly fourth opinion. When I first notified my CPA that one of my returns had been selected to be audited, he told me that it was a straightforward process and that I should be okay handling things on my own. I found the process was much more complicated to the point that I needed professional representation, however, and I ended up needing to lean heavily on multiple tax professionals. Never hesitate to call up experts to ask their advice for reassurance on another's recommendation. There were lots of things I simply would not have had the background or know-how to deal with correctly if a professional wasn’t helping me each step of the way.
Stay organized. Keep a copy of every single communication you receive via regular mail, expedited courier, email or fax. Also keep a copy of every single one of your responses and supplemental information that accompany them. Consider keeping Dropbox folders on your computer that match up with everything so you can easily reference everything. This way, your most important documents are backed up and ready to share when needed.
Keep your bank in the loop. Let your financial institutions know you're being audited if you’re requesting statements. Most waive fees for statement copies in addition to expediting requests to get you the information you need quickly.
Be on time. During the audit process it's important that you get everything that's requested returned on time. If you are ever in doubt that you can meet a deadline, let your tax professional know as soon as possible so he or she can be proactive in either requesting an extension or an alternative aggregation of information that will meet requirements.
Be upfront about your budget. Your tax professional has a right to know what you can afford to pay. Be open and honest before retaining anyone's services and agree in writing to a schedule of fees. Many professionals will agree to work with you for a flat-fee and even more are happy to share a little bit of their time via email or phone to give you some free insight if you have a specific question.
Working through a two-year audit was a very long and challenging process. I learned a lot and owe many thanks to many people who helped me along the way. Hopefully some of these tips will be of help to any of you who are reading this should you ever find yourself in a similar situation.
Copyright © 2013 Entrepreneur.com, Inc.