Understanding the Large and Mid-Size Business Examination Process
The IRS routinely conducts examinations on large to mid-size businesses to ascertain they are tax compliant. Don’t be caught not knowing what to expect during the audit. If your business falls in that category, it would be to your advantage if you know the process so you can prepare for it.
The Internal Revenue Service has what is called the Large and Mid-Size Business Division whose one function is to increase taxpayers’ compliance with tax obligations.
It conducts an examination or audit to ascertain a company's true tax liability. What they examine is employment tax and information returns to determine they are without errors and omissions. Those subject to the LMSB division’s investigation are companies having assets of more than $10 million.
During the LMSB Examination
If your company is chosen for an examination, it doesn't suggest you have committed an error or is dishonest. The selection of what company will be examined is done through computerized screening, random sampling or income document matching program. Under the process, the IRS would request certain documents, the nature of which would depend on the circumstances surrounding the probe. Usually they are minutes of meetings, audit reports, tax-related documents, financial statements, changes in accounting methods, and filings with the Securities and Exchange Commission. The examination could take place by mail, in your home or office, or office of either the IRS, or your agent. It doesn't have to be you who should be involved in the examination. You could hire an authorized representative or someone who could accompany you. In this process, the IRS recognizes the companies’ right to proper treatment and has provided on their Web site http://www.irs.gov, information on the rights of the examinee as taxpayer and under the Privacy Act.
After the LMSB Examination
After the examination, it may be established that you have correctly made your tax return, you may be eligible for a refund plus interest, or that you should make some changes to your return. You could agree to the changes and pay what tax you still owe or appeal the decision. To appeal, you could request an immediate meeting with the supervisor – that is, if the examination was done in the IRS office. It is possible that your case will immediately be closed. Otherwise, if you are unable to immediately request a meeting because the audit is someplace or you failed to reach a resolution, the examiner will document both of your positions and send the case for processing. For certain disputes, the IRS has a fast track mediation process.
Large and mid-size businesses have complex legal, tax and accounting processes. The length of the examination could take months or years to complete depending on how deep the LMSB Division wants to probe a business’ past corporate decisions, completed transactions and tax-related activities.
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