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What To Do If The IRS Comes Knocking

How can you survive an IRS audit of your trucking business?

May 2013, TruckingInfo.com - WebXclusive

by Colton Lawrence, Equinox Business Solutions

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All truckers pay income taxes, or at least all truckers who don’t like the idea of becoming a punching bag for the IRS. Yet, after tax day, there’s a small, but significant, chance a few guys in suits and black sunglasses will show up and become a major pain in your life.

One in 25 sole proprietors, which many truckers operate as, is audited by the IRS each year. And, while the risk is relatively low, you’ll want to cover your assets in case they take a second look at your taxes.

How can you survive an IRS audit of your trucking business?

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Keep Detailed Files

The first thing you need to do happens before the IRS comes knocking. That seemingly robotic IRS agent will want to see proof you spent $5,000 on repairs last year. And he’ll want to see a bunch of other documents.

Below are some items you should keep in case you get audited:

  • Ÿ  1099s
  • Ÿ  Cancelled checks
  • Ÿ  Invoices
  • Ÿ  Receipts
  • Ÿ  Statements

Basically, any financial documentation should be kept, including those for income, expenses and purchases. Keep such documents for at least three years.

Dealing With an Audit

If Uncle Sam wants a second look at your taxes, here’s what to do.

1. Stay Calm. Many times the IRS will have one or two simple questions that once answered make everything go away. The IRS wants to wrap things up with you as quickly and as easily as you want to wrap things up with them.  So stay calm, read everything carefully and don’t jump to conclusions.

2. Don’t Volunteer Unnecessary Information. In an audit situation, you’ll receive a letter specifying what the IRS wants from you. In some cases, it will want you to mail specific documents. Other times, it will require you to appear at one of its offices.

Either way, Scott Christensen, vice president of tax services for Equinox Business Solutions, says, “Only offer items the IRS specifically requests. By doing so, you’ll avoid disclosing too much information which, if something doesn’t add up, could trigger a separate problem.”

3. Don’t Lie. Don’t lie or fabricate evidence to support your tax return. After all, chances are any mistakes you may have made were honest. Why risk piling on more trouble?

4. Carefully Consider the IRS’ Decision. You have the right to review the IRS’ decision before agreeing or disagreeing with it. If you are uncomfortable with the decision, the Colorado Bar Association suggests not signing anything. Don’t verbally agree or disagree, either.

5. Appeal. If you disagree, the next step is an administrative appeal. You’d meet with the examiner and his or her manager. The manager may reverse the original decision if he or she believes it was in error.

If that doesn’t work out, you’ll need to file a protest, which is a more formal appeal. Note that the situation could linger for months or years if you go this route. If you lose, you could end up paying even more than the IRS originally requested. 

6. Consider Hiring a Professional. Consider hiring a tax professional for advice during an audit. He or she will be able to help guide you through the process and make it a less stressful process. Your tax professional may also represent you if he or she is a CPA or enrolled agent.

While the information in this article may be useful in overall terms of handling an audit, you should consider a tax pro for specific advice. One of the benefits of having your taxes prepared by a professional in the beginning is the fact that if you are audited you will have your tax preparer available to answer questions and know the specifics of your tax situation.

For more serious issues, such as a criminal investigation, hire a tax attorney. He or she will be able to both represent you in front of the IRS and, in an unfortunate situation, in court.

Colton Lawrence is senior vice president of finance for Equinox Business Solutions

Comments

  1. 1. Thomas Avery Blair, Enrol [ May 18, 2013 @ 01:03PM ]

    I would like to add that the auditor will likely ask to see records from the month of December of the year before the year of audit and for the month of January of the year following the year of audit. Often those pesky 1099-MISC reports will not match money-wise with the over-the-road truckers' records and sometimes the 1099-MISC information will come in the trucker's name and not in the name of his LLC or corporation.

    There are also instances where one might complete an amended tax return as a document double-check of the original tax return.

    I have completed and defended trucker tax returns since 1981 and I am an Enrolled Agent. Need I say more?

 

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