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IRS Audits on Small Businesses a Drag Says Congress; Tips on Preparing for an Audit

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By Caleb Groos on April 02, 2009 4:23 PM

During a House Small Business Committee hearing on the burdens of tax compliance on economic recovery, House Representatives urged the IRS to lighten up on the recently booming numbers of audits on small businesses. With the IRS's recent penchant for auditing small rather than large businesses, being prepared for a business audit can save money, time, and headache.

Today's hearing was titled "IRS Oversight: Are Tax Compliance Costs Slowing the Economic Recovery?" As the Wall Street Journal reported, Committee Chairwoman Nydia Velázquez began by pointing out that from 2005 to 2007, IRS audits of small businesses went up 41% while audits of large businesses went down 40%.

She went on to say that "[s]mall firms have been battered enough by the recession. The last thing they need is the added nightmare of an IRS investigation. In the face of a deepening recession, tax policies should be a means for small business growth, and not the straw that breaks the camels back."

In case your small business faces a potential audit this year, here are a few tips to help you prepare.

1. Find all records that substantiate your tax return. Going through and logically organizing them will help refresh you before your audit meeting.

2. Don't make the auditor dig. Organization builds credibility with the auditor.

3. Be prepared to produce the following types of documents for the auditor:

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