Tax Audits Are on the Rise. Here’s Why You Shouldn’t Freak Out.

Don’t panic, a letter from the IRS doesn’t equal doom.


5 min read

Opinions expressed by Entrepreneur contributors are their own.


Imagine getting a letter in the mail stating you owe someone $98,000. Now imagine that someone is the Internal Revenue Service.

Just the mere utterance of the letters “IRS” will give business owners and sole proprietors the chills. As you send in your yearly tax return, you can’t help but wonder: Will this be the year? No amount of hoarding receipts or carefully crafted tax returns can quite prepare you.

In my case, I had a client get a real letter requesting that very real amount of money mentioned above. The total they ended up paying? Zero.

If you’re getting audited, or you think you might get audited soon, don’t freak out. Take a deep breath and consider these reasons it won’t be nearly as bad as you’re imagining:

You’re not going to jail.

One of the first questions I get asked when someone’s getting audited is whether or not they’re going to go to jail. The notification of an audit, whether it’s a correspondence audit (in letter form) or in-field (an agent physically performs the audit), is the beginning of a long process that will likely take weeks or longer to play out.

It is not a legal summons or court order of any kind. In fact, it’s not even a legal notice that you need to pay whatever the IRS says you owe. It’s a notice with specific request to actively examine returns and associated materials. No need to catch up on Orange is the New Black, you’re probably going to be fine.

Related: Nine Common Legal Mistakes Small Business Owners Make

The IRS is what it used to be — in 1950.

The IRS currently has about as many auditors as it did back in the 1950s, when the economy was just one-seventh the size it is now. Add to that the years of budget cuts and staffing for tax enforcement that has fallen by nearly a third in the current decade alone. And from 2010 to 2017, individual audits fell by 42 percent.

Your chances of having an agent come to your office and examining your returns and tax materials is the lowest it’s been in decades.

But with the lack of human resources, the IRS has turned to automation. Automation software looks for common mismatches, such as missed income, and spits out letters — lots of letters — asking for more money. While some of the letters aren’t actually audits (more on that below), it’s still unnerving. When my clients receive an audit, usually a correspondence audit, these days it’s likely been triggered by automation software.

The good news is that the majority of the time the data is actually there, it’s just not where the IRS expected it to be. While the process will still need to play out and take some time, the data is on your side and humanity will win nearly every time.

Related: 8 Financial Tips for Entrepreneurs Launching a Startup

A letter from the IRS does not equal an audit.

While your chances of being audited are overall extremely low — less than a percent by most accounts — because of this reliance on automation it’s now much more likely that you’ll be contacted by the IRS in some form. In 2016, over 6 percent of taxpayers received some kind of letter from the IRS.

Usually, these are math-error notices or document-matching notices. Yes, it’s always stressful to open a letter from the government asking you for more money, but it doesn’t always mean it’s an audit.

These notices can generally be resolved easily. In many cases, you just need to correct the error or send in accompanying paperwork that was missed. But they are time sensitive, so it’s still important to talk with your tax preparer or accountant if you receive any kind of notice from the IRS.

You have firepower on your side.

Managing audits on your own can be stressful and time-consuming, especially when you still have a business to attend to. This is the time to call in the big guns.

Tax professionals are well versed in tax audits and can likely spot the issue quickly. Sometimes all it takes is a single phone call. And if it’s more involved, they’ll be there to manage the process so you can keep running your business.

Related: 10 Good Reasons Franchise Buyers Need A Lawyer

In my experience, most of the time audits come out on the side of the auditee. While it might be tempting to simply write that check and get the IRS off your back, resist the temptation. The IRS is about revenue — they’ll ask for the highest dollar amount even if it’s likely that you really don’t owe that much, if anything else at all.  

Tax audits are like the boogeyman: The thought of them can be quite frightening, but when you turn the lights on and look under the bed, you find that there was never anything to be afraid of.

If you get a letter from the IRS this year, instead of freaking out, turn on the proverbial lights, follow the steps above and rest assured that you’re going to be just fine.

Source

more recommended stories

  • How Philanthropy Helped Build This Billion-Dollar Liquor Brand

    Taylor Berry, Chief Marketing Officer of.

  • Wall Street Analysts Are Extremely Bearish on Tesla. Here’s Why.

    Tesla falls while the Entrepreneur Index™.

  • The 7-Step Guide To Finding the Right Clients and Avoiding the Ones Who Waste Your Time

    The right client base is the.

  • Now Is the Time to Press Even Harder for Immigration Reform

    The case for incentivizing U.S.-educated, foreign-born.

  • Chip Makers Bounce Back After U.S. Eases Restrictions on Chinese Telecom Giant Huawei Technologies

    Plus, investors had no appetite for.

  • Will Your Product Launch Be a Success? 4 Signs It Won’t Be.

    The truth is, most product launches.

  • A Beginner’s Guide to Starting and Marketing an App

    First-timers in app development tend to.

  • 12 Passive-Aggressive Phrases That Can Destroy Your Business

    Maybe you think you’re being polite,.

  • Cannabis Shops Linked to Lower Crime, Increased Property Values

    A store selling legal marijuana is.

  • What Exactly Is the Biohacking Movement?

    These shifts in mindset, diet and.

  • Snag These Premium Bang & Olufsen Headphones for Nearly Half Off

    Bang & Olufsen’s H4 Bluetooth Over-Ear.

  • These Presentation Templates Can Help You Make a Better Impression

    ShapeSlide’s 40-in-1 Presentation Bundle makes every.

  • Why Entrepreneurs Should Believe They Are Unstoppable

    Josh York, CEO of Gymguyz, talks.

  • 4 Instagram Best Practices for Increasing Sales

    Users are shifting from editorial to.

  • How to Calculate Gross Profit

    Know whether your business is making.

  • Tesla Stock Falls Hard Despite Elon Musk’s Claim That It Will Eventually Have $500 Billion Market Cap

    Plus, Under Armour stock jumps based.

  • Buying Into These Myths Can Make for Bad Hiring Decisions

    Every company can point to a.

  • Technology Stocks Lead Market Higher Despite Another Tesla Crash

    Tesla shares were down after a.

  • 7 Tips for Network Marketing Success

    There are six key elements you.

  • 10 Things You Didn't Realize Were Invented in the 1970s

    From the first mobile phone to.

  • 18 Ways for Digital Nomads to Make Money

    All you need is a laptop,.

  • SpaceX Is Building Another Starship in Florida

    The competition is on. May 15,.

  • Entrepreneur Index™ Rises as Fears of Trade War Dissipate

    The technology sector leads the rebound,.

  • 25 Interesting Facts You Should Know About Chick-fil-A

    One interesting fact about Chick-fil-A? By.

  • These Strategies Help Entrepreneur Combat Anxiety and Depression

    The same character traits make people.

  • Market Tanks — and Uber and FAANG Stocks Fall — After China’s Trade Retaliation

    President Trump may be comfortable with.

  • Supreme Court Rules Against Apple in App Store Price Fixing Case

    The decision paves the way for.

  • Why Athletes Are Using Cannabis for Training and Recovery

    They want more gain, less pain..

  • Grow Your Business With POWr’s Website Plugins

    This extensive plugin collection allows you.

  • Meet the Working Mothers of Cannabis

    In honor of Mother’s Day, Green.

  • 10 Business Ideas for Making Extra Money After Work

    A steady paycheck is financial stability..

  • How to Build and Leverage Relationships With Successful People

    Dana Pump, CEO and co-founder of.