No Exception IRS Audit

How To Survive An IRS Audit With Zero Exceptions

Every business has to deal with the potential of an IRS audit.  Typically a business will have numerous errors in their accounting or in their record keeping that will show up as an exception in an IRS audit and require the company to pay additional income taxes.  There are countless details as IRS regulations become increasingly complex it is getting easier to lose money to additional taxes and penalties due as a result of an audit.  That is in addition to the professional fees you pay for representation during an audit.  Most small businesses don’t pay enough attention to this area of their business and frequently suffer significant losses from additional taxes and penalties charged after an audit.

Saved over $25k in potential losses through an exception free IRS audit as a result of implementing and documenting a reliable accounting system

The objective was to create an accounting system that was not difficult to maintain and produced accurate reporting.  The accounting was considered critical to the operations since collecting on invoices as expected and paying the contract trainers in a timely fashion would be a key factor in success.  Since the company would hire a significant number of independent contractors, it was critical to document the independent contractor relationship and each transaction to justify the 1099 status.  A system of documentation was created for every engagement given to a trainer with a checklist of required documentation. Each engagement would involve the trainer’s fee and travel expenses.  The trainer would be required to send us an invoice with predefined required information to allow the bookkeeper to enter a set standard of information in QuickBooks.  There would also be a contract addendum for every engagement the trainer would do.  Trainers would not be sent on an engagement until they had a master contract signed along with a completed W-9 form. The engagement files were organized by Invoice numbers, which was assigned once the job was completed.  When the company’s tax return was audited, the IRS auditor commented immediately about the completeness of the documentation and shortened the audit after realizing that he would not find any exceptions.  As a result we saved a projected cost of over $25k in CPA and Tax Attorney fees as well as potential back taxes, late fees and penalties, and loss of staff productivity that would result from a typical full audit.

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2013 Jim Anderson

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