The construction industry is continually busy, but what happens if your construction business suddenly finds itself dealing with an audit? Some unexpected things might come up during the audit process you need awareness of to stay prepared.
What are some things you might encounter? They range from having to turn over unexpected documents to the possibility of finding issues within your construction company transactions. Here is a short list of things to consider, including the possibility of legal intervention.
What Kind of Documents Might You Have to Give to the Auditor?
As the auditor goes through your books and ledgers, they may need further information to clarify all your expenses. Sometimes further proof is needed to completely clarify you never fudged financial facts.
One thing they may ask for beyond the typical financial books is a job cost folder you have on file. These determine the actual costs of construction projects you planned. Cost estimates help better match up with the figures you spent.
They may also ask for purchase invoices for further clarification. Plus, they may need copies of work contracts, and copies of requisitions if you had inventory withdrawn.
Many of your billings (including those still in progress) may need bringing in as well. Keep all your receipts for those. Also, all labor time-cards may need showing to properly calculate your payroll tax.
Some Issues Possibly Brought Up During the Audit
No construction company like yours wants to hear about an issue found during the audit process. If any do arise, you shouldn’t panic. However, you need to know what those issues might entail so you can be prepared to bring in the above documents to prove your side.
A common red flag here is when the auditor requests matching of operations with all your documents. This is why the above-mentioned documents need fast availability. Keeping them in the cloud is a good idea so you can quickly access them and send them to the auditor.
Auditors may also call your company out if they see the contractor involved is responsible for the taxes paid, or if they just report everything. If costs don’t line up correctly with what the contractor says in the materials purchased, an auditor will raise a red flag.
When expense and supply items are not listed in the list of costs, auditors also call this out and ask for further documentation.
You Disagree with the Auditor’s Findings
All auditors do a post-review period where they discuss their findings with you. They should give you the right to either agree or disagree with any (or more) of the red flags mentioned above.
What happens if you disagree with them about their findings? You might have to contest this by filing an appeal with your state if related to state tax. In other cases, perhaps you have to concede on some red flags.
Going through the appeal process can sometimes become a draining process, taking away valuable time from your construction business. Dealing with appeals through the IRS is even more difficult.
Your better bet is to gain help from an experienced legal team who understands the process of tax audits.
Finding Legal Help with Your Construction Business Audits
You could end up with significant financial loss if deciding to take on your construction business audit alone. Dealing with things like interstate and foreign commerce transactions (the notorious Wayfair taxes) can end up costing you much more in taxes than you ever anticipated.
Hiring an experienced tax attorney can help you fight back against these potentially serious state and federal tax audit gouges.
At Coggins Law, you can expect to get the best team available to help you through the tax audit maze. What is most important is to seek our help the minute you receive an audit notice. Your act to appeal has a short time-frame, so it is important to act quickly.
Brian Coggins once worked as an accountant and understands the perils of audits. Now a respected tax attorney with 15 years of experience, he can help you deal with audit appeals to get your construction business back in financial order.
Contact us immediately if in the middle of an audit now. Or call us at 916-270-2895.