As a small business, the most common reason the IRS will contact you is for an audit. If your tax return features anything statistically unlike other returns of a similar nature, you may be asked for your financial information to ensure proper reporting. Typically, businesses that take the time to consistently manage their financial records have nothing to fear.
In addition to statistical differences known as DIF scoring, the IRS may also contact you if another company paid you for services or products. They will contact you to verify that these payments were recorded. Proper income reporting for employees could also trigger an audit. When IRS agents audit your records, they will generally not look back more than 3 years, per the statute of limitations. In some cases, the statute will be extended.
If the IRS does contact you, they will never do so through the internet initially. Anything you receive that way is likely a scam and should be immediately reported. They will contact you via phone or snail mail. Audits can be conducted remotely through correspondence and telephone. Other times, audits will take place at a local office or on your own property.
To decrease the likelihood that the IRS will contact you for an audit:
- Keep payroll records for 4 years.
- Use an outside company for financial management. Outside companies understand what the IRS will be looking for if they call, and they can help small businesses stay on top of their record keeping requirements.
- Record every business transaction and its source when it happens.
- Consult a financial manager regarding deductions. If an item does not directly work towards profit, you may not be able to claim it on your return.
Always cooperate fully when the IRS calls. They only audit a very small portion of businesses every year. Take the proactive steps to ensure your business is in good standing, and consult an outside professional to protect your business and your rights.