Finance News & Insights

The dreaded tax audit! Go from just ‘surviving’ to ‘thriving’

What is Finance’s best strategy for tax audits? Always expect one to occur.

That’s advice from Jeffrey Meigs, partner and consulting practice leader at TaxConnex.

When your finance team anticipates an audit, they’ll constantly be prepping – documenting processes, creating paper trails, organizing files. That way, when the inevitable tax audit does roll around, your team’s ready.

5 must-take steps

To prepare now and emerge from a tax audit sanity intact, Meigs advises you to take these five steps:

1. Outline your tax processes. Think fast: Has each tax process within the Finance department been clearly outlined and documented? If the answer’s “no,” now’s the time to get it down. If the answer’s “yes,” you’ll want to check that it’s current and make any necessary updates.

These concrete outlines have a two-fold purpose. First, they give auditors a clear picture of how you operate, immediately lessening the chances of uncertainty or unclarity. Second, they show your company’s good-faith effort for compliance.

2. Determine your potential risk. When and if you get news of an audit, you’ll first want to pause and assess where you stand. Ask:

  • Why are we being audited? (Was our company audited recently? Is our industry a current industry of focus for auditors? Was a vendor or customer recently audited? Did we submit incorrect or questionable information?)
  • What shape are our records in? (Are they complete? Are they accurate? Should staffers reorganize or better categorize them to ease the auditor’s job?)
  • What format are our records in? (Are they all digitial? All paper? A mix of the two? What’s the best way to consolidate them?) Remember, how easy records are to access is huge for auditors.

3. Align the auditor with the right person or people. In most cases, you’ll want to place the auditor with one specific staffer to keep your message consistent and controlled, Meigs says. When one qualified staffer is in charge, you don’t have to worry about inconsistencies or confusion.

Depending on your confidence in your company’s ability to handle the audit, bringing in third-party representation is another option, Meigs explains. A third party may help you with anything from reviewing your records and giving advice during the audit to managing the whole audit process on your company’s behalf.

4. Know what to provide – and when to provide it. Meigs says having an organized flow of information for the auditor shows your willingness to work with them. Along with your tax records, be sure to have any supporting documentation ready (exemption certificates, purchasing or sales records, qualifications for tax deductions, etc.).

As for when you should provide it? Not until the auditor asks for it. Your company doesn’t want to overshare or offer any information that isn’t specifically requested.

5. Commit from start to finish. Audits can be a bit of a negotiation, Meigs points out. Every company’s operations are unique, and there are often gray areas when it comes to tax compliance.

And this negotiation starts right away, with your first interaction with the auditor. If you create a good relationship with the auditor at the beginning – and carry that all the way through the audit – it can benefit you at the end when you’re talking through any gray areas or possible missteps your company may have made.


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