When you have an IRS or state tax auditor coming into your company, it’s already a bad day. Then that initial request for your company’s tax data comes in, and the auditor asks for every scrap of paper for every transaction for the last 10 years. What are your options?
Before your Finance people give in to those requests, consider two options that could make it easier, courtesy of the Sales & Use Tax Monitor:
1. Reduce the initial requests. One thing that’s common to all tax audits is the type of information that you’ll need to pull up.
Prior returns, invoices, exemption certificates, G/L sections – every audit is going to focus on these categories. But the volume of what an auditor needs to look at has more leeway.
Once you’re notified that you’re being audited, contact the auditing agency to say that all information requests should be made in writing.
After you get the auditor’s initial breakdown of requested documents, you can go through the laundry list and ask how things could be streamlined. You may be able to whittle the time span down to only a year, especially if you show strong documentation across the board.
2. Track what was given and when. Given how much information you’ll be sending the auditor’s way, it’s vital to keep track of submissions on your end of the audit.
You’ll want to keep a log of every document sent to the auditor, as well as how and when you submitted it.
Think of it as insurance: Not only do you know where your information is going, but it’s also proof that your company responded to requests in a timely manner.
Especially as states and the federal government become more hungry for tax revenue, they’re using unreasonable audit demands to squeeze businesses dry. Your documentation can keep the damage to a minimum.