When your business is faced with an audit, it’s important to remain calm and plan the next step. Whether your R&D tax credit is being examined, or the IRS or state tax authority wishes to know more about another tax incentive claim, you should speak with your audit representative first.
Many outsourced tax consultant firms provide audit representation to clients. Working with your consulting partner is an advantage because your consultant is already aware of the documentation you have filed and your eligibility for specific tax credits based on prior experience with your company.
Your tax consultant ensures conversations with the tax authorities are focused on the details of the audit. By communicating with the IRS or state representative and advising your company about what information to provide, an audit representative prevents your audit from expanding to include other areas of your business.Your audit representative should also help you understand the laws related to your tax return, the issues with your filing and how to properly submit your documentation. Without tax law expertise, it is not advisable to go through an audit alone. Learn more about how professional audit representation benefits your company.
Audit Representation Helps Address Potential Filing Mistakes
There are a number of reasons your tax credit claim may be challenged. Your audit representative must be able to provide a sound argument against potential mistakes identified during a tax audit. The following categories are used to test misstatements:
Completeness
Your representative should prove that all transactions have been recorded in your financial statements.
Occurrence
Your consultant must prove that the recorded transactions and events really took place.
Validation And Allocation
All items included in your financial statements must have been recorded as the appropriate amount. Additionally, your audit professional should prove allocations or valuation adjustments have been made and disclosed fairly.
Classification And Understandability
Your audit representative must ensure financial information is appropriately presented and disclosed. Simple language should be used for conciseness.
Accuracy
The amounts and information related to transactions and events must have been recorded correctly.
Rights And Obligations
Your tax consultant should prove that your business has a right to its assets and you are free to use them as you deem appropriate. Your business is also required to pay off liabilities included in the statement of financial position.
Existence
Your audit professional must prove that your assets, liabilities and equity interests are physically present and belong to you.
Cutoff
Transactions and events must have been recorded in the correct accounting period.
Speak With Your Tax Consultant
As you plan for an upcoming audit, keep your audit professional informed of your preparations. R&D credits, employment credits, green building credits and cost segregation studies are all valuable tax savings strategies. Providing proper support for your claims allows your business to retain these significant benefits.
If you have questions about the audit process or other tax solutions your business wishes to pursue, a tax consultant is a valuable resource. Speak with a tax expert at CTI to get started today.
Ready to discover other tax savings strategies that may benefit your business? Learn how to capture and profit from R&D tax credits.
