In Volume 17, Issue 4 of Construction Today, Greg Seador discusses tax fraud in the construction industry and advice for businesses faced with an IRS audit.
“For a construction business, audits will almost always be a field examination, where a revenue agent visits the business to examine its books and records,” he explains. “Generally, one should be able to tell from the initial IRS notice letter that the IRS is conducting an audit, as opposed to a more serious investigation, as well as the tax issues under examination.”
Seador shares that when responding to an IRS audit, gather and carefully scrutinize all tax returns and documents related to the identified issues, then organize and categorize the documents according to the issues under audit to streamline the presentation of the information to the IRS revenue agent.
“Audits can take an extended period of time to complete. The average business audit often takes upwards of a year,” he states. “This time can be shortened through preparation, and by devoting the resources necessary to timely respond to the auditor’s requests for information as early in the process as possible.”
If a business suspects it is the subject of a civil or criminal investigation, a document hold should immediately be put in place and all routine record destruction should be suspended. Employees should be instructed that all documents and electrically stored information, such as email, related to the allegations must be preserved. Do not shred or alter any documents!
“When the company’s legal counsel determines that it is appropriate to speak with IRS Special Agents or revenue agents – tell the truth! Lying to a federal agent is a felony independent of any tax offense,” Seador cautions. “Federal investigators are well-prepared and likely will already know the answers to the questions they are asking. Counsel should be present during any interview or statement given to federal investigators.”
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