How to Prepare Your Company for the New IRS Audit Era

Key Takeaways:

• Invest in secure cloud storage and cybersecurity measures for proper data retention and compliance with IRS requirements.

• Maintain accurate records and document policies and procedures to prevent disputes and keep all financial documents organized and accessible.

• Collaborate with tax professionals and maintain relationships with IRS liaisons and taxpayer advocates to navigate complex tax controversies effectively.

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The landscape of tax resolution and advocacy is rapidly evolving. As the Internal Revenue Service (IRS) adopts advanced technology and increases its workforce, companies need to be more prepared for potential audits and examinations.

Getting Your Company Audit-Ready

Here are five practical steps to help prepare your company for an audit:

1. Invest in data management — Proper data retention and management are crucial. Your company should transition from traditional storage methods, such as USB drives, to more secure options like cloud computing. However, it's vital to implement strong cybersecurity measures to protect sensitive information.

2. Maintain accurate records — All your financial records and documents used in tax return preparation need to be organized and easily accessible. This includes keeping work papers from third-party tax preparers and documenting the rationale for any deductions or claims made on tax returns.

3. Document policies and procedures — Having clear policies and procedures for financial transactions and deductions is essential. This can prevent disputes with the IRS over the legitimacy of claimed deductions.

4. Train your team — Your staff, especially those involved in financial reporting and compliance, are well-trained and aware of the latest tax laws and regulations. Avoid having untrained personnel handle critical discussions with IRS auditors.

5. Collaborate with professionals — Given the complexity of modern tax issues, such as those involving cryptocurrency, it’s crucial to involve specialized practitioners. For example, if your company deals with digital assets, consider consulting with professionals who are knowledgeable in cryptocurrency and digital asset taxation.

Anticipating Increased IRS Scrutiny

With the IRS focusing on closing the $7 trillion tax gap, your business should expect more scrutiny — especially in areas like international transactions, digital assets and employment taxes. The recent resurgence of automatic notice generation by the IRS means your company needs to be vigilant about its tax filings and ready to respond promptly to any notices you receive.

Building Your Tax Network

Having access to a knowledgeable network of tax professionals can enhance your ability to navigate tax controversies. This includes relationships with IRS stakeholder liaisons, local taxpayer advocates, and other tax professionals. These connections can offer valuable insights, assist in resolving disputes, and help you understand new IRS initiatives.

Enhancing Your Internal Capabilities

To keep pace with the IRS's increased technological capabilities, your business must also enhance its internal processes. This includes upgrading software and research tools to streamline the preparation of tax appeals and audit responses. Investing in technology will help minimize the time and effort needed to compile comprehensive responses to IRS inquiries, ultimately reducing the cost and duration of your audits.

Leveraging Industry Insights

Staying informed about tax law changes, industry trends, and IRS focus areas can help your company be prepared for what’s to come. Your tax team should regularly communicate with you, offering insights into the IRS's evolving approach. This knowledge enables you to understand potential audit triggers and develop proactive strategies to address them.

Proactively Managing Your Tax Compliance

As the IRS continues to evolve its enforcement strategies, your mid-market company must stay proactive in its approach to tax compliance. By investing in technology, keeping thorough records, training staff, and maintaining a strong network of professionals, your business can better manage the complexities of the current tax environment.

How MGO Can Help

We are here to help you navigate the ever-changing landscape of tax resolution and advocacy. For detailed questions or advice tailored to your specific situation, reach out to our team today.