Robert J. Fedor, Esq., L.L.C.

Small businesses and owners frequently targeted by IRS

Small business owners often make many financial and personal sacrifices to ensure for the growth of their business. Starting a business is a complicated process and requires that an individual is not only knowledgeable about their specific market, products and services, but also about financial matters.

For small business owners who learn their company is the subject of an IRS audit, the process can be nerve wrecking. This is often especially true of companies that rely largely upon independent contractors to complete work or deal primarily in cash. In addition to reviewing a business' financial records and tax documents, a small business owner should also expect to have their personal financial and tax information scrutinized by IRS agents.

When conducting an audit of a small business, IRS agents are trained to look for certain clues that a business owner may be violating regulations or laws. For example, the IRS is likely to be suspicious of businesses that claim to employ many independent contractors and will likely request additional documentation related to why these individuals aren't classified as employees.

IRS agents will also pay close attention to how a business owner lives. For example, does a business owner who claimed a loss in profits last year drive an expensive car, take lavish vacations or wear designer clothing? If so, he or she can expect additional attention from the IRS. Additionally, business owners who claim a lot of business expenses must ensure those deductions are legitimate and that they are able to produce documentation to validate related deductions.

Unfortunately, there's no way to avoid being the subject of an IRS audit and small business owners are often especially subjected to increased scrutiny by the IRS. In cases where a business owner learns of an impending IRS audit, it may be wise to consult with an attorney who handles criminal IRS tax matters who can answer questions and, if necessary, provide assistance.

Source:, "Business Audits by the IRS," 2014

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