what happens in a irs audit

Discussion in 'Business Operations' started by illday, Oct 2, 2005.

  1. illday

    illday LawnSite Member
    Messages: 89

    I know of 2 local lco's that have been audited by the IRS.
    Both were cheating but had there paperwork in order and made out ok.
    One of these companies I used to be a foreman and this guy was as crooked as can be.

    My question is:
    1) what exactly happens in a irs audit?
    2) how is it decided that your business is to be audited?
    3) how to prepare in case your business is audited?
  2. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Messages: 1,847

    Most audits are simply correspondence audits. The IRS will send you papers and demand that you return the specified documents and informantion. Typically, if this info is in order, that is the end of the audit. If that is no good, then they will send out an auditor to do a field audit.

    Audits are generally random. However, auditors will pursue leads that are passed to them as well as pursue high profile cases, such as someone winning lottery or survivor (real life example, haha). It used to be as high as 1 in 20 gets randomly audited, now its lower because they are pursuing more leads.

    IMO, just keep good business records. ALso, dont fudge the numbers. If your ratios are out of line, that will send up red flags and increase your chances of an audit.
  3. J Hisch

    J Hisch LawnSite Senior Member
    Messages: 952

    Many factors go into a audit

    1. Business who constantly show loses but continue to stay open
    2. Income goes through the roof in one year or decreases alot in one year.
    3. Poor reporting practices- meaning you fail to file stuff on time etc.
    4. You pay alot of personal property taxes yet as far as your income is concerned you make peanuts.

    A internal audit is expenses, they will not audit you for your peanuts. meaning if you only make 60k they will not waste their time. Your tax exposure needs to be rather large for them to internally audit your company. However income tax is where most people get their flags from. Such as you drive a corvette, and claim it as a business assest. Little flags.
  4. topsites

    topsites LawnSite Fanatic
    Messages: 21,653

    I'm not crooked but I also don't understand much about taxes... I don't file quarterly because the 10-dollar non-filing fee is cheaper than spending hours figuring something out, at least for me.
    But, they don't like it a lot.

    So, I usually get a few phonecalls every year.

    I answer their questions as best I can, and honestly.

    I do keep good records, if they ask then I allow the IRS access to any bank accounts, etc... Let them look, verify some figures, lalala...

    If I owe them money, I send them a check.

    That's it for me. It's not as big a deal as ppls make it out to be, my stuff is red-flagged year-round, but I'm not trying to evade or hide, either.

    So, be upfront, be honest... Usually a letter, sometimes a phonecall, it's usually pretty pleasant, they're just doing their job, help them have an easy day at work, life goes on.

    End of year, I use quickbooks to file a long form (about 10-15 papers).
  5. grasswhacker

    grasswhacker LawnSite Gold Member
    Messages: 3,873

    I went through a field audit last Dec-April, which is an extensive audit done by a more highly trained agent. I ended up owing 1100.00. The IRS is nothing to mess with and I recommend that all LCOs report EVERYTHING. Even if you think your getting away with something they will evaluate your lifestyle to determine whether you are cheating or not. If you are stop it and be honest about your business finances.
    I would also suggest that whether one is honest or not that you hire an atty that has an IRS backround. It will take away alot of stress during the audit if it is more extensive because the IRS will take every word you say and try to use it to their advantage. I actually never had to meet with them since my atty did all the face to face.
    Again don't do it alone if it is anymore than a correspondence audit.
    Also they are looking for at least 6k in additional taxes with a field audit to make it worth the man hours spent.
  6. walker-talker

    walker-talker LawnSite Platinum Member
    from Midwest
    Messages: 4,771

    My dad is a retired IRS auditer and now has his own tax preparation company. I remember the first year I was list my income and expenses for everything I had listed EVERYTHING in increments of $5. Anotherwards I had fuel expenses listed at $440, insurance $2600, advertisiment,$3300 (these are just examples)....etc. He said that is a huge red flag for the IRS. J Hisch had a pretty good post. Also, dad says get your taxes in early as possible, that will help also keep the IRS off your back. I have never been through an audit and hope the hell I don't have to.
  7. outrunjason

    outrunjason LawnSite Senior Member
    from dallas
    Messages: 714

    I hate the IRS. Now I do pay sales tax and somehow I just completly forgot about the second quarter. They sent me a letter telling me that I needed to go to court. I was like no way!. So, I called them and they said to send all the money in on the 3rd quarter. So, I did. Well lets just say that I don't have the exact numbers that I put on paper. They called me today and said hey what did you make for the second quarter. Well heck I don't know you have the paper work. She said no we don't, all we have is the 3rd quarter. So, they took what I put down and it looks like that is what I made for the 3rd quarter and that I have still not payed for the second. I finally got her to get it straigtned out only after I lost my temper and told her that I was not going to file sales tax anymore. (Yeah not a good idea)

    I was upset though. It is my fault but it makes me mad that other companies don't even pay and they pretty much don't have anything to worry about. I know a lot of friends that don't pay. I asked her what happens in a case where I forget and I don't pay and she explained they would come out and do an audit. I said well what if I had no information to give. She said they would estimate it.

    So, yeah stay on top of the sales tax or whatever or it looks like they might come a knockin or callin.

  8. olderthandirt

    olderthandirt LawnSite Platinum Member
    from here
    Messages: 4,899

    IRS says you owe X amount of $$$
    You pay X amount of $$$ plus interest and penalties
    You go to nearest Church and prey its don't happen again. :p :laugh:
  9. SodKing

    SodKing LawnSite Bronze Member
    Messages: 1,641

  10. Runner

    Runner LawnSite Fanatic
    Messages: 13,497

    We were just talking about this the other day. A friend of mine who does lawns (solo) didn't do his taxes this last year, and wants to know how to go about it. I have no idea who he should contact, and just told him to call the IRS. Well, he doesn't want to do that. Anyone have any ideas on what he should do? I have NO idea.

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