Independent Contractor Compliance Blog - by Collabrus™

So you’ve been contacted by a government tax auditor and verified he/she is legitimate. What now? Before agreeing to a start date for the audit, here are a few questions you may wish to ask the auditor:

Why are we being audited? There are a variety of reasons you could have been selected; a random survey, a filing error, a benefit claim, a complaint, or perhaps you are in a “Targeted Industry.” The possibilities are many. Knowing why you were selected will help you prepare.

If it is about an individual, can you resolve that issue first and maybe there won’t be a need to conduct a full blown audit? It can’t hurt to ask. Your objective is to try to keep the inquiry to just the issue that got you noticed. Even if the answer is “no” resolving the initial problem up front may help on others downstream. (Hopefully, you’ve followed my advice on proper classification procedures and documentation of the project, so you will be able to prove you did it right). If the auditor believes there are no other misclassification issues maybe he/she will move on to greener pastures.

What time period will the audit cover? Most audits have what is called a “Test Period’ and the full range or the “Statutory Period.” (We’ll cover those topics later)

What are the minimum records the auditor will need to see? There’s no point in dragging everything out of storage listed on the form letter. Most auditors have a personal preference of records they like to examine. Sometimes it depends on the issues. Sometimes they’re taking short cuts. Just ask. Asking what the auditor really needs will save you time and you won’t be volunteering records the auditor may not normally examine.

Which brings up the Number One rule for an audit: Never volunteer information. I’ve sat on the “auditor-side” of an audit countless times during my career when the taxpayer started volunteering information and I learned things I never would have on my own…Almost always to the taxpayer’s harm.

Here’s my advice to you: Answer the auditors’ question, honestly, and then stop talking.

How long will the auditor be at your business? Having a tax auditor sitting in your office is disruptive.  You may need to reschedule other activities, such as visiting clients, meetings, out of town travel, etc.

Does the auditor have a deadline to complete this audit? Can it be changed? Don’t be afraid to ask for more time. If this appointment is not convenient for your company when can it be rescheduled? In most situations, you can delay the initial visit if you have a pressing business reason why it will not be convenient at this time. Reasons to delay are limited only by your situation and imagination. A few examples are:

• Illness
• Closing out the fiscal year-end books
• Seasonal business events
• Major changes of key personnel in the accounting, HR or finance departments
• Travel
• Fires or other disasters that have affected the business
• Anything else beyond your control that affects your ability or time available to host an auditor.

It’s only a job to the auditor and if you have a good reason, he/she will usually agree to reschedule the visit. If you did buy extra time, be sure to use it well.

What’s next?

Some ideas how to productively use the time you bought before the auditor shows up.