How Audit Representation Defends Your Tax Credits And Deductions

Written by Frances Kim. Updated Jun 25, 2015.

ThinkstockPhotos-472616426Many businesses have never faced an IRS or state audit and are consequently unfamiliar with the process of defending their tax claims. An audit is a review of your business’s accounts and financial information to determine whether the amount of tax reported is substantiated and correct.

The possibility of being chosen for an audit is not a reason to avoid pursuing tax savings strategies. Your tax consultant service should provide audit representation in order to help you feel more confident as you pursue tax solutions. A consultant also assists you in proving that your business is qualified to claim valuable tax credits.

If your business is claiming tax credits and deductions based on federal and state programs, it is beneficial to work with audit representation experienced in these programs or strategies, as they would be familiar with defending these benefits.

Your audit professional should help you understand tax laws, the issues with your tax return and how to correctly prepare your documentation. Additionally, audit representation ensures that your communication with the IRS or state tax authority does not cause the inquiry to expand beyond what the audit was originally intended to address.

Over the course of an audit, your representative may defend claims or filing positions related to the following tax credits and deductions:

Research And Development Tax Credits

If your company conducts research that’s intended to improve a product, methodology or technology, you may submit for R&D credits. Your audit representative must prove that your expenditures related to supplies and personnel are qualified according to tax law.

Employment Tax Credits

Programs like the Work Opportunity Tax Credit (WOTC) and other employment tax credits provide companies with significant tax savings. Your business may qualify if you hire individuals who face barriers to employment, such as veterans and food stamp recipients. During an audit, your representative defends your valuable tax credit claims so that your budget isn’t negatively affected by a loss of the benefit.

Cost Segregation

This tax savings strategy allows you to reclassify certain property and shorten depreciation time, resulting in reduced liability and increased cash flow. Your savings may be audited if there are questions about your eligibility or documentation.

Green Building Incentives

Tax credit programs that encourage green energy in new or renovated buildings enable businesses to reduce their energy costs while receiving a tax benefit. Your audit representative should be aware of the deadlines required for green energy technology to be placed into service, as well as proper audit procedures.

All of these programs involve special requirements to qualify, calculate and support your benefit. An auditor reviews your workpapers to ensure that your requirements have been satisfied over the course of a federal or state program audit.

Retaining documentation to support these benefits is crucial. You may be audited many years after you claim the benefit due to various factors, and your audit representative must provide proof that you are eligible to claim the benefit.

Working with professional audit representation ensures that your tax credits and deductions stand up to federal and state review as long as your documentation supports your claims. Speak with an expert tax consultant today if you have questions about how to capture or substantiate valuable tax credits for your business.

Ready to learn how to capture other tax credits that help your company maximize savings? Discover tips and expert advice on R&D credits. 

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Topics: R&D Tax Credit, Employment Incentives, Training Incentives, Property Incentives

Frances Kim

Written by Frances Kim

As one of the first CTI employees, Frances has held many key positions and has played an integral role in our diversification process. With more than 10 years in customer service and management, Frances’ proven adaptability has enabled her to manage projects for clients ranging from small start-ups to Fortune 500 companies.