Revenue is down for everyone and the worry is that federal and local coffers will be looking to increase income through audits after six months of quiet. Even the IRS delayed starting many new audits between April 1st and July 15th unless the statute of limitations would run out and keep the agency from pursuing a case later. As a result, according to a report released by the National Taxpayer Advocate, the number of corporate audits fell 71 percent, partnership audits fell 79 percent and individual examinations fell 65 percent.
The IRS has begun reopening its operations, but it will take some time before they are restored to full capacity and conducting face-to-face audits. State agencies and manufacturers have been quicker to ramp up activity. If your dealership receives any kind of audit notification it is important to keep these tips in mind.
For new examinations, create a positive first impression with the agent or representative, who may be new to the job. Upon receipt of an audit notice it is best to contact the auditor to introduce yourself and who will be working with the auditor and handling their requests. For more high-level audits, such as the IRS, you should let them know that your certified public accountant will be handling the audit.
Open up the lines of communication early on and set the stage so that the examination can progress as efficiently as possible. Don’t make it difficult for an auditor to do their job; they are more likely to work with you if a good relationship is established.
We know that when possible, the IRS will continue to rely on remote contact between its employees and taxpayers for existing audits and in the vast majority of its cases; invasive audits will be at a minimum. Several manufacturers have also found mail-in audits can be effective. We expect that personal contacts will be minimized when possible.
When providing information, it is a great rule of thumb to not over-provide information. Especially now being that we are in a time where remote document uploading is becoming the standard. It is very easy to over provide documentation that you think might “help” answer the question or perhaps “shed some more light” on a specific issue however, if you are asked for items A, B and C, do not provide them items A, B, C, D and E. Keep it short, sweet, to the point… and organized. Less is more.
One of the toughest aspects of any audit is the feeling that the auditor is questioning your honesty. That there is a monetary punishment at the end only adds to the annoyance. Try to listen to and understand the auditor’s point or assertion and then respond. Again, for many audits, it might be helpful to let a third party, like your accountant, interact with the auditor. Having someone in your corner that is as knowledgeable as the auditor (or even more so) about the laws, regulations or factory policies will not only help minimize the cost for the dealership but also help explain if any errors are found.
Audits can be a very unnerving and daunting time for businesses and individuals, as most people only hear the worst of the worst and thus view tax notices and audits in a negative light… now more so than ever. It is very important to take control of the process and work directly with your trusted advisor so that they may work directly with authorities to help keep your stress levels at bay. Contact Withum’s Retail Automotive Services Group today if you have any questions or concerns.